Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:30 AM EST, here’s what we see:
US Dollar: Up at 96.180, the US Dollar is up 194 ticks and is trading at 96.180.
Energies: April Crude is up at 51.90.
Financials: The June 30 year bond is down 2 ticks and trading at 158.23.
Indices: The Mar S&P 500 emini ES contract is up 3 ticks and trading at 2097.25.
Gold: The April gold contract is trading up at 1201.10 and is up 2 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 down. 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 up which is not correlated. Gold is trading up 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 lower with the exception of the Nikkei exchange which traded fractionally higher. As of this writing all of Europe is trading higher.
Possible Challenges To Traders Today
Challenger Job Cuts y/y is out at 7:30 AM EST. This is major.
Unemployment Claims are out at 8:30 AM EST. This is major.
Revised Nonfarm Productivity q/q is out at 8:30 AM EST. This is not major.
Revised Unit Labor Costs q/q is out at 8:30 AM EST. This is not major.
FOMC Member Williams Speaks at 10 AM EST. This is major.
Factory Orders m/m are out at 10 AM EST. This is major.
Natural Gas Storage is out at 10:30 AM EST. This could move the Nat Gas market.
Currencies
Yesterday the Swiss Franc made it’s move at around 10 AM EST after the economic news was reported. 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 10 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 10 AM EST and the Swiss Franc hit a high. 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 shorting 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 downside as both the USD and Bonds were higher and we took that as a negative sign for the markets (which it usually is). The markets didn’t disappoint as again the Dow dropped 106 points and the other indices lost 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
With all the political intrigue surrounding DC, Netanyahu’s speech and Obamacare we forgot to mention Auto Sales which is always a major component and affects market direction. On Tuesday Total Vehicle Sales were reported that did not meet expectation coming in at 16.2 million versus 16.8 million expected. I would think that the Fed is going to keep this in mind prior to firing off interest rate hikes. If they think 16.2 million is bad then they shouldn’t consider hiking rates because if they do the only people that will purchase vehicles (either a full sale or lease) will be those who absolutely, positively must have a vehicle. In other words their current clunker is about to fall apart. There are those economists who are now saying that the Fed may raise in the 4th calendar quarter and I’m starting to see that as well. Of course time will tell how it all works out…
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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