Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:10 AM EST, here’s what we see:
US Dollar: Up at 85.810, the US Dollar is up 43 ticks and is trading at 85.810.
Energies: November Crude is down at 92.83.
Financials: The Dec 30 year bond is up 1 tick and trading at 137.21.
Indices: The Dec S&P 500 emini ES contract is down 32 ticks and trading at 1968.00.
Gold: The October gold contract is trading up at 1219.30 and is up 52 ticks from its close.
Initial Conclusion
This is not a correlated market. The dollar is up+ and oil is down- which is 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 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 all of Europe is trading lower.
Possible Challenges To Traders Today
Core PCE Price Index m/m is out at 8:30 AM EST. This is not major.
Personal Spending m/m is out at 8:30 AM EST. This is major.
Personal Income m/m is out at 8:30 AM EST. This is major.
Pending Home Sales m/m is out at 10 AM EST. This is major.
Currencies
On Friday the Swiss Franc made it’s move at around 8:35 AM EST after the GDP 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 8:35 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 8:35 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 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. Please note that the front month for both instruments is now December.
Charts Courtesy of Trend Following Trades built on a NinjaTrader platform
Bias
On Friday we said our bias was neutral as we felt the markets could go in any direction. The Dow gained 167 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
On Friday we said our bias was neutral as we felt the markets could go in any direction. We also felt that direction was going to be driven by economic news and it was. Final GDP was released at 8:30 AM EST that met expectation coming in at 4.6% versus 4.6% expected. It also increased from the prior quarter’s 4.2%. This was welcome news and the markets took off and did not look back. In other news it was reported that Bill Gross resigned from Pimco (a company he started) and today will start at Janus. This is interesting because Bill Gross was always known as the “bond king” and has been featured on numerous occasions on CNBC and other networks. It will certainly be the end of an era at Pimco. Bill Gross helped to bring the “stodgy” bond market into the limelight and helped to elevate bonds as the safe haven.
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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