Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 5:25 AM EST, here’s what we see:
US Dollar: Up at 82.975, the US Dollar is up 192 ticks and is trading at 82.975.
Energies: October Crude is down at 95.30.
Financials: The Sept 30 year bond is down 25 ticks and trading at 140.24.
Indices: The Sept S&P 500 emini ES contract is up 13 ticks and trading at 2004.75.
Gold: The October gold contract is trading down at 1276.20 and is down 100 ticks from its close.
Initial Conclusion
This is not a correlated. The dollar is up+ and oil is down- which is 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 the US dollar is trading up which is not correlated. Gold is trading lower 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 to the upside with exception of the Hang Seng and Aussie exchanges which traded lower. As of this writing all of Europe is trading higher.
Possible Challenges To Traders Today
Final Manufacturing PMI is out at 9:45 AM EST. This is major.
ISM Manufacturing PMI is out at 10 AM EST. This is major.
Construction Spending 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.
ISM Manufacturing Prices is out at 10 AM EST. This is not major.
Currencies
On Friday the Swiss Franc made it’s move at around 9:45 AM EST at around the time Chicago PMI was reported. 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 9:45 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 9:45 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 plus 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
On Friday we said our bias was to the upside as the markets were nearly correlated in that direction. The Dow gained 18 points, the Nasdaq gained 22 and the S&P regained the 2,000 crown to close at 2003. 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
On Friday we said our bias was to the upside as the markets were nearly correlated in that direction with the missing ingredient being Gold. Despite a volatile session with a reported cyber attack against JP Morgan Chase, the markets managed to close to the upside with the Dow up 18 points and the S&P regaining the 2,000 crown to close at 2,003. It was reported on Friday that JP Morgan Chase suffered a cyber attack and the FBI is looking into the matter. It was reported that Russian hackers were behind the attack possibly to retaliate against the US sanctions levied against Russia. This has yet to be confirmed but if substantiated I have no doubt the Russians will deny it and say it was independent hackers who did this. The markets initially went down but at around 10 AM after Chicago PMI was released, managed to gain its footing and proceed higher. We mentioned in our Market Bias video that the markets would want to close higher going into a 3 day holiday weekend and it happened as predicted.
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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