The Bears Roar

Good Morning Traders,

As of this writing 4:10 AM EST, here’s what we see:

US Dollar: Jun. USD is Down at 97.380.
Energies: Jul Crude is Up at 44.71.
Financials: The Sept 30 year bond is Down 3 ticks and trading at 155.12.
Indices: The June S&P 500 emini ES contract is 13 ticks Higher and trading at 2435.25.
Gold: The Aug gold contract is trading Up at 1256.40. Gold is 19 ticks Higher than its close.

Initial Conclusion

This is not a correlated market. The dollar is Down- and crude is Up+ which is normal and 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 Down- 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.

At this hour all of Asia is trading Higher with the exception of the Shanghai and Singapore exchanges which are trading Lower. All of Europe is trading Higher at this hour.

Possible Challenges To Traders Today

– Building Permits are out at 8:30 AM EST. This is major.

– Housing Starts are out at 8:30 AM EST. This is major.

– Labor Market Conditions Index are out at 10 AM EST. This is major.

– Prelim UoM Consumer Sentiment is out at 10 AM EST. This is major.

– Prelim UoM Inflation Expectations is out at 10 AM. This is major.

– FOMC Member Kaplan Speaks is out at 10 AM. This is major.

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 after the 8:30 AM economic news was reported. 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 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 15 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 contract is now September, 2017.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform.

Bias

Yesterday we gave the markets a downside bias as the USD and the Bonds were all trading higher yesterday morning. Today we aren’t dealing with a correlated market and our bias is to the upside.

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

Commentary

So we’re all hung over after the Fed hiked the Federal Funds Rate on Wednesday. From our point if view all we did was to follow our rules of market correlation which told us that the markets would go down yesterday and they did. The Dow dropped 15 points and the other indices lost ground as well. Today we have Building Permits and Housing Starts, both of which are major and proven market movers.

Share: Analysis feed

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.