Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:50 AM EST, here’s what we see:
US Dollar: Up at 94.815, the US Dollar is up 475 ticks and is trading at 94.815.
Energies: April Crude is down at 50.45. Please note: the front month for crude is now April.
Financials: The Mar 30 year bond is up 9 ticks and trading at 144.10
Indices: The Mar S&P 500 emini ES contract is down 10 ticks and trading at 2102.50.
Gold: The April gold contract is trading down at 1193.30 and is down 116 ticks from its close. The front month for Gold is now April
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 Crude is trading down 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 mixed with half the exchanges trading lower and the other half higher. As of this writing all of Europe is trading to the upside with the exception of the London exchange which is trading fractionally lower.
Possible Challenges To Traders Today
Existing Home Sales is out at 10 AM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 8:30 AM EST with no economic news in sight. 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 8:30 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 8:30 AM EST and the Swiss Franc hit a low. These charts represent the latest version of Trend Following Trades and I’ve changed the timeframe to a Renko chart to display better. This represented a long opportunity on the Swiss Franc, as a trader you could have netted 20 plus ticks on this trade. We added a Donchian Channel to the charts to show the signals more clearly. 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 neutral as the futures didn’t give us any sense of direction. A neutral bias means the markets could go in any direction and it did. First by opening lower and staying in negative territory until after 12 noon EST. The Dow reached a new all time high by closing at 18,140, up 154 points. The other indices closed higher as well. The Nasdaq is within striking distance of 5,000 which is a level not seen since calendar year 2000 during the dot com boom. 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 it appeared as though every market worldwide was awaiting news to see if Greece had struck an accord with the European economic powers. Up until 12 noon EST it appeared as though no deal was struck and the market traded lower. Then after 12 noon it was announced that an accord was struck and markets trended higher. In fact in our Market Bias video we advised subscribers of this newsletter to be prepared for such an event happening. But wait a minute. This “accord” is only a temporary band aid to the problem as it’s a 4 month extension of their current deal. Of course there is a caveat involved. Greece must inform the European Finance Ministers by Monday as to what measures they will take. Greece originally wanted a 6 month extension. This could potentially blow up in everyone faces as the “measures” the ECB is looking for is austerity and that’s something the Greeks don’t want. If the Greek public feels that this isn’t a better deal or their current leaders could have gotten a better deal, a new election could be in the wind. So the drama continues…
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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