Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:30 AM EST, here’s what we see:
US Dollar: Down at 98.005, the US Dollar is down 200 ticks and is trading at 98.005.
Energies: June Crude is down at 55.89.
Financials: The June 30 year bond is up 13 ticks and trading at 163.25.
Indices: The June S&P 500 emini ES contract is down 23 ticks and trading at 2085.25.
Gold: The June gold contract is trading down at 1198.70. Gold is 44 ticks lower from its close.
Initial Conclusion
This is not a correlated market. The dollar is down- and oil is down- which is not normal but the 30 year bond is trading up. 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 down which is not correlated with the US dollar trading down. 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 mainly lower with the exception of the Milan exchange.
Possible Challenges To Traders Today
- HPI m/m is out at 9 AM EST. This is major.
- Existing Home Sales is out at 10:30 AM EST. This is major.
- Crude Oil Inventories is out at 10:30 AM EST. This could move the crude market.
Currencies
Yesterday the Swiss Franc made it’s move at around 10 AM EST with no real 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 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 high at around 10 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 however the markets had other ideas as the Dow dropped 85 points but the Nasdaq gained 19. The S&P dropped fractionally. Today we’re dealing with a mixed market that has no sense of direction; hence our bias is neutral.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
What a difference a day makes. Yesterday we said our bias was to the upside as crude faltered yesterday morning and we didn’t place enough emphasis on the USD and Bonds trading higher. Today we are starting to see more economic news creep into the mix so perhaps we may see something a bit different.
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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