Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 5:35 AM EST, here’s what we see:
US Dollar: Up at 81.495, the US Dollar is up 90 ticks and is trading at 81.495.
Energies: September Crude is up at 98.40.
Financials: The Sept 30 year bond is up 6 ticks and trading at 138.09.
Indices: The Sept S&P 500 emini ES contract is down 1 tick and trading at 1931.75.
Gold: The August gold contract is trading up at 1292.50 and is up 42 ticks from its close.
Initial Conclusion
This is not correlated market. The dollar is up+ and oil is up+ which is not normal and 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 fractionally and the US dollar is trading up which is correlated. Gold is trading higher which is not 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 mixed with half the exchanges trading higher and the other half lower. As of this writing Europe is trading mainly higher with the exception of the Spanish IBEX and Milan exchanges which are trading lower.
Possible Challenges To Traders Today
Final Services PMI is out at 9:45 AM EST. This is not major. ISM Non-Manufacturing PMI is out at 10 AM EST. This is major. Factory Orders m/m is out at 10 AM EST. This is major. IBD/TIPP Economic Optimism is out at 10 AM EST. This is not major.
Currencies
Yesterday the Swiss Franc made it’s move at 11 AM EST with no news in sight. The USD hit a low at around that time and the Swiss Franc hit a high. 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 low at 11 AM EST and the Swiss Franc hit a high. 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 shorting opportunity on the Swiss Franc, as a trader you could have easily netted 12-15 ticks on this 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. The markets however had other ideas as the Dow gained 76 points and the other indices gained 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
Yesterday we said our bias was to the downside as both the USD and the Bonds were pointed higher. Usually this does not bode well for an upside day. I suspect the reason for this is because the Smart Money wanted to put capital back on the table. Think about it for a second, the markets had deep losses on Thursday and Friday; Asia had traded mainly higher and so did Europe yesterday morning. The train of thought must have been “enough” let’s go long. In truth the bias should have been neutral as not only was the USD and Bonds trading higher, but just about everything else traded higher as well. But as we say each and every day, could this change? Of course, anything can happen in a volatile market.
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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