The Taxman Cometh

Good Morning Traders,

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

US Dollar: Jun. USD is Down at 100.135.
Energies: May Crude is Down at 52.92.
Financials: The June 30 year bond is Up 14 ticks and trading at 153.29.
Indices: The June S&P 500 emini ES contract is 17 ticks Lower and trading at 2341.00.
Gold: The April gold contract is trading Down at 1286.80. Gold is 51 ticks Lower 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 Down- and Crude is trading Down- 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.

At this hour Asia is trading mainly Lower with the exception of the Nikkei exchange which are trading Higher. As of this writing all of Europe is trading Lower.

Possible Challenges To Traders Today

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

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

– Capacity Utilization Rate is out at 9:15 AM EST. This is major.

– Industrial Production m/m is out at 9:15 AM EST. 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.

Last Thursday the ZB made it’s move at around 9 AM after the Empire State Manufacturing numbers came out. 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 9 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 9 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 12 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.

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

Bias

Yesterday we gave the markets a downside bias as both the Bonds and Gold were trading higher and this usually represents a downside bias. The markets however had other ideas as the Dow gained 184 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 first day back after a long holiday weekend and what happened? Instead of going lower the markets rose. Why? It isn’t unusual that after a lengthy holiday weekend the markets rise as there is pent up demand especially since Europe was closed for Easter Monday. Are we going into the scenario where up day up and the next day down? Only time will tell…