ADP Doesn't Wow

Good Morning Traders,

As of this writing 3:50 AM EST, here’s what we see:

US Dollar: Up at 93.300. The US Dollar is up 113 ticks and trading at 93.300.

Energies: June Crude is up at 45.20.

Financials: The June 30 year bond is down 8 ticks and trading at 164.04.
Indices: The June S&P 500 emini ES contract is up 32 ticks and trading at 2055.00.

Gold: The June gold contract is trading up at 1281.40. Gold is 70 ticks higher than its close.

Initial Conclusion

This is not a correlated market. The dollar is up+ and crude is up+ which is not normal but the 30 year bond is trading lower. 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 up which is not 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.

Asia traded mainly lower with the exception of the Shanghai and Sensex exchanges which traded higher. As of this writing all of Europe is trading higher.

Possible Challenges To Traders Today

– Challenger Job Cuts y/y is out at 7:30 AM EST. This is major.

– Unemployment Claims are out at 8:30 AM EST. This is major.

– Prelim Unit Labor Costs q/q is out at 8:30 AM EST. This is major.

– Natural Gas Storage is out at 10:30 AM EST. This is major.

– FOMC Member Bullard Speaks at 11:30 AM. This is major.

Gold

We’ve elected to switch gears a bit and show correlation between Gold and The YM futures contract. The YM contract is the DJIA and the purpose is to show reverse correlation between the two instruments. Remember it’s liken to a seesaw, when up goes up the other should go down and vice versa.

Yesterday Gold made it’s move at around 9:45 AM EST after the 8:30 round of economic news was reported. The YM hit a low at around that time and Gold hit a high. If you look at the charts below the YM gave a signal at around 9:45 AM EST, while Gold 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 YM hit a low at around 9:45 AM EST and Gold hit a high. These charts represent the latest version of Trend Following Trades and I’ve changed the timeframe to a 15 minute chart to display better. This represented a shorting opportunity on Gold, as a trader you could have netted about 50 plus ticks per contract on this trade. Each tick is worth $10. We added a Donchian Channel to the charts to show the signals more clearly.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Bias

Yesterday we gave the markets a neutral bias as the futures had no sense of direction yesterday morning. The Dow dropped 100 points and the other indices lost ground as well. Today we aren’t dealing with a correlated market however our bias is to the upside.

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

Commentary

Yesterday we gave the markets a neutral bias which means it could go in any direction. The ADP Employment report came out at 8:15 AM EST and showed a decline in numbers of jobs created. This in turn drove the markets lower and even after the opening bell the markets went south and didn’t look back. The “good” news here is that the Fed will be very reluctant to raise rates or even think about raising rates in the near term. Today we have Challenger Jobs cuts out at 7:30 AM EST and this will set market direction for the day as well. BTW today is Cinco de Mayo and regardless of where you live you must admit that we could all use a more festive market…