Durable Goods Doesn't Drop Markets

Good Morning Traders,

As of this writing 4:50 AM EST, here’s what we see:

US Dollar: Up at 99.155 the US Dollar is up 615 ticks and trading at 99.155.

Energies: March Crude is up at 33.48.

Financials: The Mar 30 year bond is up 38 ticks and trading at 161.08.
Indices: The Mar S&P 500 emini ES contract is up 77 ticks and trading at 1900.00.

Gold: The Feb gold contract is trading down at 1112.70. Gold is 29 ticks lower than its close.

Initial Conclusion

This is 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 traded higher with some exchanges higher by triple digits. As this writing all of Europe is trading higher as well.

Possible Challenges To Traders Today

- Advance GDP q/q is out at 8:30 AM EST. This is major.

- Advance GDP Price Index q/q is out at 8:30 AM EST. This is major.

- Employment Cost Index q/q is out at 8:30 AM EST. This is major.

- Goods Trade Balance is out at 8:30 AM EST. This is not major.

- Chicago PMI is out at 9:45 AM EST. This is major.

- Revised UoM Consumer Sentiment is out at 10 AM EST. This is not major.

- Revised UoM Inflation Expectations is out at 10 AM EST. This is not major.

Currencies

Yesterday the Swiss Franc made it’s move at around 8:30 AM EST at around the time that the economic news was reported . The USD hit a low at around that time and the Swiss Franc hit a high. 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 low at around 8:30 AM EST and the Swiss Franc hit a high. 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 shorting opportunity on the Swiss Franc, as a trader you could have netted about 20 plus 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

Yesterday we gave the markets an upside bias as both the USD and the Bonds were trading lower yesterday morning and this usually bodes well for an upside day. The Dow gained 126 points and the other indices gained ground as well. Today we aren’t dealing with a correlated market and our bias is neutral.

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

Commentary

So yesterday was the day after the FOMC Meeting and it looked as though the markets realized the gift they got from the Fed. Despite not too stellar economic news, the markets managed to plow higher even though Durable Goods was down and only Unemployment Claims were better than expected. So some of you may be thinking how could you possibly know that the markets would trade higher yesterday? The only we did and do on a daily basis is to follow our rules of market correlation despite whatever else is happening. The markets went higher because the Smart Money wanted it to go higher but if you follow the rules of Market Correlation you would know that early AM.