Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 5:10 AM EST, here’s what we see:
US Dollar: Down at 83.810, the US Dollar is down 24 ticks and is trading at 83.810.
Energies: October Crude is up at 94.88.
Financials: The Dec 30 year bond is up 3 ticks and trading at 138.09.
Indices: The Sept S&P 500 emini ES contract is down 18 ticks and trading at 1993.25.
Gold: The October gold contract is trading down at 1263.80 and is down 18 ticks from its close.
Initial Conclusion
This is not a correlated market. The dollar is down- and oil is up+ which is 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 the US dollar is trading down which is not 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 mainly lower with the exception of the Shanghai exchange which traded higher. As of this writing Europe is trading mainly lower with the exception of the DAX and Spanish IBEX which is higher.
Possible Challenges To Traders Today
Non-Farm Employment Change is out at 8:30 AM EST. This is major.
Unemployment Rate is out at 8:30 AM EST. This is major.
Average Hourly Earnings m/m is out at 8:30 AM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 7:45 AM EST immediately after the Challenger Job Cuts numbers came out. 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 around 7:45 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 low at 7:45 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 netted about 20 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
Yesterday we said our bias was neutral as we the futures wasn’t giving any sense of direction. The Dow dropped 8 points and the other indices lost ground as well. Given that today is Jobs Friday our bias is neutral. A neutral bias means the markets could go in any direction.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday we said our bias was neutral as we had a virtual tsunami of economic data. That’s the problem with a major holiday. You lose one day and all the economic data gets bunched up into one day. Now a neutral bias means the markets could go in any direction and it did today. First up until about 2 PM EST and then down to close lower. In fact we said this in our Market Bias video that our initial thought was for a downside bias but when you have 11 economic reports in one morning you realize that the markets could be driven in any direction. Today we have monthly Non-Farm Payrolls and that is always major. It also holds the key as to when the Federal Reserve may end the era of easy money. I hope it is later as opposed to sooner as I’m not convinced that this economy is a booming, thriving one.
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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