Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:40 AM EST, here’s what we see:
US Dollar: Up at 94.285, the US Dollar is up 50 ticks and is trading at 94.285.
Energies: April Crude is down at 50.45.
Financials: The Mar 30 year bond is up 10 ticks and trading at 147.06
Indices: The Mar S&P 500 emini ES contract is up 16 ticks and trading at 2114.25.
Gold: The April gold contract is trading up at 1214.30 and is up 128 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 up and Crude is trading down 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 mainly higher with the exception of the Indian Sensex and Singapore exchanges which traded lower. As of this writing all of Europe is trading to the upside although fractionally.
Possible Challenges To Traders Today
CPI m/m is out at 8:30 AM EST. This is major.
Core CPI is out at 8:30 AM EST. This is major.
Unemployment Claims are out at 8:30 AM EST. This is major.
Core Durable Goods Orders m/m is out at 8:30 AM EST. This is major.
Durable Goods Orders m/m is out at 8:30 AM EST. This is major.
HPI m/m is out at 9 AM EST. This is major.
Natural Gas Storage is out at 10:30 AM EST. This can move the Nat Gas market.
FOMC Member Lockhart Speaks at 1 PM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 8 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 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 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
Yesterday we said our bias was to the upside and the market didn’t disappoint. The Dow gained 16 points but the Nasdaq and S&P both dropped by 1. Today we aren’t dealing with a correlated market and our bias is to the upside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Well it looks like Chair Yellen did it again. Yesterday we said it wasn’t a good idea to underestimate her and despite the fact that it looked like the market would drop, it didn’t. Instead the Dow gained 16 points. Today we have a virtual tsunami of economic reports out today, all of which are major and all have the capacity to move the markets and/or change market direction.
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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