Jolts Doesn't Jumpstart Markets

Good Morning Traders,

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

US Dollar: Down at 98.220 the US Dollar is down 363 ticks and trading at .98.220.
Energies: January Crude is up at 37.97.
Financials: The Mar 30 year bond is up 3 ticks and trading at 154.30.
Indices: The Dec S&P 500 emini ES contract is down 11 ticks and trading at 2056.00.
Gold: The Fed gold contract is trading up at 1078.60. Gold is 33 ticks higher than its close.

Initial Conclusion

This is a not a correlated market. The dollar is down- and crude is up+ which is normal but 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 down and Crude is trading higher which is correlated. Gold is trading up which is correlated with the US dollar trading down. 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.

Asia traded mainly lower with the exception of the Shanghai exchange which traded up fractionally. As of this writing all of Europe is trading lower.

Possible Challenges To Traders Today

- Wholesale Inventories are out at 10 AM EST. This is major.

- Crude Oil Inventories are out at 10:30 AM EST. This could move crude markets.

- 10-y Bond Auction starts at 1 PM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at around 9:45 AM EST prior to the JOLTS Job Opening numbers. 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 9:45 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 9:45 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 a downside bias as Crude and the Bonds were both trading higher and this is usually a signal for a downside day. The Dow dropped 163 points and the other indices lost ground as well. Today we aren’t dealing with a correlated market and our bias is to the downside.

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

Commentary

Last Friday after the NFP numbers came out and it seemed that everyone was keen to pop a champagne cork and celebrate. We mentioned in Monday’s edition that if the job market was so stellar then why did the U6 Rate (long term unemployed) go up? Why isn’t the official unemployment rate still at 5% and not below? Well it turns out that the pace of job creation is slowing as job openings shrunk from 5.53 million last month to 5.38 this month. This should give the Fed some time to pause as this isn’t the time to be hiking interest rates. Hiking rates at this juncture would serve to put a damper on Holiday spending and other major items like Autos. This in turn could tend to slow the economy and no one wants that. Obviously the markets didn’t like this number either but we have a week to go before the FOMC meetings so time will tell….