Stir Fried Sessions

Good Morning Traders,

As of this writing 4:15 AM EST, here's what we see:

US Dollar: Dec. USD is Down at 93.395.
Energies: Dec Crude is Down at 55.18.
Financials: The Dec 30 year bond is Up 25 ticks and trading at 153.21.
Indices: The Dec S&P 500 emini ES contract is 46 ticks Lower and trading at 2566.75.
Gold: The Dec gold contract is trading Up at 1284.40. Gold is 15 ticks Higher than its close.

Initial Conclusion

This is 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 Lower and Crude is trading Down- which is not 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.

At this hour all of Asia is trading Lower. As of this writing all of Europe is trading Lower as well.

Possible Challenges To Traders Today

  • CPI m/m is out at 8:30 AM EST. This is major.

  • Core CPI m/m is out at 8:30 AM EST. This is major.

  • Retail Sales m/m is out at 8:30 AM EST. This is major.

  • Core Retail Sales is out at 8:30 AM EST. This is major.

  • Empire State Mfg Index is out at 8:30 AM EST. This is major.

  • Business Inventories m/m is out at 10 AM EST. This is major.

  • Crude Oil Inventories is out at 10:30 AM EST. This is major.

  • TIC Long-Term Purchases is out at 4 PM EST.

Treasuries

We've elected to switch gears a bit and show correlation between the 30 year bond (ZB) 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 the ZB made it's move at around 10 AM EST. The ZB hit a Low at around that time and the YM hit a High. If you look at the charts below ZB gave a signal at around 10 AM EST and the YM was moving Lower at the same time. Look at the charts below and you'll see a pattern for both assets. ZB hit a Low at around 10 AM and the YM hit a High. These charts represent the newest version of Trend Following Trades and I've changed the timeframe to a 30 minute chart to display better. This represented a long opportunity on the 30 year bond, as a trader you could have netted about a dozen plus ticks per contract on this trade. Each tick is worth $31.25. We added a Donchian Channel to the charts to show the signals more clearly. Please note that the front month for the ZB and the YM contract is now December, 2017.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Pre-Market Global Review

Pre-Market Global Review

Bias

Yesterday we called for a Neutral bias as all the instruments we track were pointed lower. The Dow dropped 30 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

This so called Attorney General makes Mr. Magoo and Barney Fife look brilliant. First he doesn't remember anything then he remembers that he saw the media reports and thought "oh yeah now I remember." We're not saying that this caused the markets to fall yesterday but it certainly didn't help. We mentioned in yesterday's edition that GE's woes would be felt in the markets and they were. Today we have a boatload of economic news and that news may cause the markets to either continue or correct it's trend.

Trading performance displayed herein is hypothetical. The following Commodity Futures Trading Commission (CFTC) disclaimer should be noted.

Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance trading results is that they are generally prepared with the benefit of hindsight.

In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results.

There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

Trading in the commodities markets involves substantial risk and YOU CAN LOSE A LOT OF MONEY, and thus is not appropriate for everyone. You should carefully consider your financial condition before trading in these markets, and only risk capital should be used.

In addition, these markets are often liquid, making it difficult to execute orders at desired prices. Also, during periods of extreme volatility, trading in these markets may be halted due to so-called “circuit breakers” put in place by the CME to alleviate such volatility. In the event of a trading halt, it may be difficult or impossible to exit a losing position.