Super Bowl Didn't Help

Good Morning Traders,

As of this writing 4:35 AM EST, here’s what we see:

US Dollar: Up at 96.775 the US Dollar is up 194 ticks and trading at 96.775.

Energies: March Crude is up at 30.38.

Financials: The Mar 30 year bond is down 10 ticks and trading at 165.23.
Indices: The Mar S&P 500 emini ES contract is up 5 ticks and trading at 1853.25.

Gold: The Feb gold contract is trading down at 1182.20. Gold is 97 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 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 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.

Asia traded mainly lower with the exception of the Hang Seng and Singapore exchanges which traded higher. As this writing Europe is trading mainly higher with the exception of the Milan exchange which is trading lower.

Possible Challenges To Traders Today

- NFIB Small Business Index is out at 6 AM EST. This is not major.

- JOLTS Job Openings is out at 10 AM EST. This is major.

- Wholesale Inventories m/m 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 with no real economic news to speak of. The USD hit a high at around that time and the Swiss Franc hit a low. 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 high at around 8:30 AM EST and the Swiss Franc hit a low. 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 long 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

Bias

Yesterday we maintained our neutral bias as the markets didn’t appear to have any sense of direction yesterday morning. The Dow dropped 178 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

Ordinarily the day after a major sporting event like the Super Bowl would have traders pumped up and clamoring for action. Not so yesterday as all the indices on the US markets fell in tandem yesterday morning as soon as the opening bell rang. The Dow fell into negative territory and remained there for the rest of the session. The other indices followed suit as well. Maybe it was because for the first time ever the Super Bowl commercials weren’t so super or perhaps it was because no one really bought into the Non-Farm Payroll numbers from Friday. Whatever the reason, the market will have more to digest tomorrow as Janet Yellen testifies before a congressional committee on Wednesday; so we can only speculate what the market reaction will be...