Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:01 AM EST, here’s what we see:
US Dollar: Up at 86.105, the US Dollar is up 58 ticks and is trading at 86.105.
Energies: November Crude is up at 91.42.
Financials: The Dec 30 year bond is up 1 tick and trading at 137.30.
Indices: The Dec S&P 500 emini ES contract is down 2 ticks and trading at 1965.00.
Gold: The October gold contract is trading down at 1205.50 and is down 50 ticks from its close.
Initial Conclusion
This is not a 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 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 lower with the exception of the Shanghai exchange which traded fractionally higher. As of this writing Europe is trading mainly higher with the exception of the London which is currently trading lower.
Possible Challenges To Traders Today
ADP Non-Farm Employment Change is out at 8:15 AM EST. This is major.
Final Manufacturing PMI is out at 9:45 AM EST. This is not 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.
ISM Manufacturing Prices is out at 10 AM EST. This is major.
Crude Oil Inventories are out at 10:30 AM EST. This could move the crude market.
Total Vehicle Sales – All Day
Currencies
Yesterday the Swiss Franc made it’s move at around 9:25 AM EST after the economic news 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 9:25 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 9:25 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 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 to the upside as the bonds were trading lower and crude was trading higher. The markets however had other ideas as the Dow dropped 28 points and the other indices lost ground as well. Today we aren’t dealing with a correlated market and our bias is neutral. A neutral bias means the markets could go in any direction today.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday we said our bias was to the upside as crude was trading higher and the bonds were trading lower. These are usually bullish signals for the markets but a funny thing happened on the way to the opening bell. Case-Schiller Home Price Index numbers came out that did not meet expectation and in fact fell way short; coming in at 6.7% versus 7.5% expected. Traders don’t like reports pertaining to the price of homes coming in that low. Real Estate and anything connected to it is still a very powerful force in the markets. This plus the fact that none of the other reports beat expectation sent the markets on a wild ride. First down, then up, then down and then up again finally closing lower. Today we have a virtual tsunami of economic reports including Total Vehicle Sales that can send the markets in any direction depending upon the results.
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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