Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 5:35 AM EST, here’s what we see:
US Dollar: Down at 80.555, the US Dollar is down 15 ticks and is trading at 80.555.
Energies: September Crude is up at 102.52.
Financials: The Sept 30 year bond is down 2 ticks and trading at 138.02.
Indices: The Sept S&P 500 emini ES contract is up 2 ticks and trading at 1954.00.
Gold: The August gold contract is trading down at 1310.80 and is down 63 ticks from its close.
Please note: the front month for Crude is now September.
Initial Conclusion
This is not correlated market. The dollar is down- and oil 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 the US dollar is trading down which is correlated. Gold is trading lower 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.
Asia traded mixed with the exchanges higher and the other half lower. As of this writing all of Europe is trading is trading lower.
Possible Challenges To Traders Today
Prelim UoM Consumer Sentiment is out at 9:55 AM EST. This is major.
Prelim UoM Inflation Expectations is out at 9:55 AM EST. This is major.
CB Leading Index m/m is out at 10 AM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at 11 AM EST after the Philly Fed Manufacturing Index numbers were released. 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 11 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 11 AM EST and the Swiss Franc hit a low. I’ve changed the charts to reflect a 5 minute time frame and added a Darvas Box to make it more clear. This represented a long opportunity on the Swiss Franc, as a trader you could have netted 15-20 ticks on that trade. Remember each tick on the Swiss Franc is equal to $12.50 versus $10.00 that we usually see for currencies.
Charts Courtesy of Trend Following Trades built on a NinjaTrader platform
Bias
Yesterday we said our bias was to the downside as Europe was trading lower, the Bonds were much higher than usual and Gold was higher as well. The Dow dropped 161 points and the other indices lost ground as well. Today we aren’t dealing with a correlated market and our bias is neutral. Members: kindly watch the Market Bias video for a more detailed explanation. If you aren’t a member, signup for our free trial.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday we said our bias was to the downside as the Bonds were trading much higher than usual. The markets opened lower and very briefly went into positive territory. Then 11 AM came and the news had reported that a Malaysian Flight 17 was shot down in eastern Ukraine. The Ukraine government blamed the pro-Russian rebels and at the same time the Ukraine government reported that Russia shot down a Ukrainian jet in the Ukraine air space. This obviously led to the markets dropping like a rock. At this point no one knows the real circumstance behind the incident. Flight 17 black boxes were recovered by the rebels and handed over to the Russians.
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.
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