Holiday Shortened Week Brings Gains

Good Morning Traders,

As of this writing 4:45 AM EST, here’s what we see:

US Dollar: Dow at 97.905 the US Dollar is down 111 ticks and trading at 97.905.
Energies: February Crude is down at 37.47.
Financials: The Mar 30 year bond is up 5 ticks and trading at 155.07.
Indices: The Mar S&P 500 emini ES contract is down 19 ticks and trading at 2046.50.
Gold: The Feb gold contract is trading down at 1071.80. Gold is 41 ticks lower than its close.

Initial Conclusion

This is a not a correlated market. The dollar is down- and crude is down- which is not 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 lower which is not correlated. Gold is trading down which is not 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 Nikkei and Sensex exchanges which traded higher. As of this writing Europe is trading mainly lower. Please note that the London FTSE and Canadian exchanges are closed for Boxer Day.

Possible Challenges To Traders Today

- No Major Economic News.

- Lack of Economic News

Currencies

Last Wednesday the Swiss Franc made it’s move at around 11 AM EST after all the economic news was reported. 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 11 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 11 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 about 15 ticks per contract 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

Last Wednesday we said our bias was neutral as the futures didn’t seem to have any sense of direction. On Wednesday the Dow closed higher by 180 plus points and on Thursday it traded lower by 50. All in all a mixed session for both days. Today we will maintain our neutral bias.

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

Commentary

Well it looks as though we finally got our Santa Claus rally after all. It came a bit later than expected but it came nonetheless. The economic news that came out last Wednesday didn’t meet expectation but apparently the markets didn’t care as they rose higher. Ironically enough the major economic news that came out on Thursday was Unemployment Claims which dropped by 5,000 yet the Dow closed lower by 50 points. The question is can the markets maintain its momentum going into the New Year? Below is a weekly chart of the Dow which started last week at 17,200 and finished the week at 17,552. Only time will tell if this will happen.