NFP Friday

Good Morning Traders,

As of this writing 5:20 AM EST, here’s what we see:

US Dollar: Up at 98.215 the US Dollar is up 581 ticks and trading at .98.215.
Energies: January Crude is up at 41.49.
Financials: The Dec 30 year bond is up 22 ticks and trading at 154.06.
Indices: The Dec S&P 500 emini ES contract is up 30 ticks and trading at 2058.75.
Gold: The December gold contract is trading down at 1060.60. Gold is 6 ticks lower than its close.

Initial Conclusion

This is a not a correlated market. The dollar is up+ and crude is up+ which is not normal and the 30 year bond is trading higher. The Financials should always correlate with the US dollar such that if the dollar is lower then bonds should follow and vice-versa. The indices are up and Crude is trading higher which is not correlated. Gold is trading down which is correlated with the US dollar trading up. I tend to believe that Gold has an inverse relationship with the US Dollar as when the US Dollar is down, Gold tends to rise in value and vice-versa. Think of it as a seesaw, when one is up the other should be down. I point this out to you to make you aware that when we don’t have a correlated market, it means something is wrong. As traders you need to be aware of this and proceed with your eyes wide open.

All of Asia traded lower.. As of this writing Europe is trading mainly lower.

Possible Challenges To Traders Today

- Average Hourly Earnings m/m is out at 8:30 AM EST. This is major.

- Non-Farm Employment Change is out at 8:30 AM EST. This is major.

- Unemployment Rate is out at 8:30 AM EST. This is major.

- Trade Balance is out at 8:30 AM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at around 8:30 AM EST prior to the 8:30 News coming out. The USD hit a high at around that time and the Swiss Franc hit a low. If you look at the charts below the USD gave a signal at around 8:30 AM EST, while the Swiss Franc also gave a signal at just about the same time. Look at the charts below and you’ll see a pattern for both assets. The USD hit a high at around 8:30 AM EST and the Swiss Franc hit a low. These charts represent the latest version of Trend Following Trades and I’ve changed the timeframe to a Renko chart to display better. This represented a long opportunity on the Swiss Franc, as a trader you could have netted 20 plus ticks on this trade. We added a Donchian Channel to the charts to show the signals more clearly. Remember each tick on the Swiss Franc is equal to $12.50 versus the $10.00 that we usually see for currencies.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Bias

Yesterday we gave the markets an upside bias as Crude, Gold and the Bonds were all pointed lower and usually that’s a good indication for an upside day. The markets however had other ideas as the Dow dropped 252 points and the other indices lost ground as well. Today given that it’s NFP Friday we’ll give a neutral bias.

Could this change? Of Course. Remember anything can happen in a volatile market.

Commentary

Yesterday Janet Yellen gave her testimony to Congress and apparently all is rosy in USA Land. It sounds to me as though the Fed has made up their minds: they will raise rates in either December or January. This is sad because we ‘re not convinced that all is rosy in the economy. US GDP is still way behind prior recoveries and inflation isn’t anywhere near the 2% target that the Fed themselves have placed on it. On Congressman even asked Yellen if “raising rates would stimulate borrowing”? This isn’t as ridiculous as it sounds. In the 1970′s the same ploy was used to sell inflation with the idea being “hey you better buy now because we don’t know what the price will be tomorrow.” If you ask me it seems as though an interest rate hike is ready baked in the market, we just hope that when it occurs it happens for the right reason and perhaps will provide a sense of normalcy in the markets; which we haven’t seen in quite some time.

For those of you who are new to us we gave the markets a neutral bias today. A neutral bias means the markets could go in any direction. There are two days in the month when we definitely give a neutral bias. One is Jobs Friday (today) and the other is FOMC Day. Why? Because the markets historically have never shown any sense of normalcy on those days.