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 97.000, the US Dollar is up 59 ticks and is trading at 97.000.
Energies: June Crude is down at 56.49.
Financials: The June 30 year bond is down 9 ticks and trading at 162.18.
Indices: The June S&P 500 emini ES contract is down 18 ticks and trading at 2100.25.
Gold: The June gold contract is trading down at 1200.30. Gold is 29 ticks lower from its close.
Initial Conclusion
This is not a correlated market. The dollar is up+ and oil is down- which is normal but 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 down and Crude is trading down which is not correlated. Gold is trading down 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 lower.
Possible Challenges To Traders Today
- S&P/CS Composite-20 HPI y/y is out at 9 AM EST. This is major.
- CB Consumer Confidence is out at 10 AM EST. This is major.
- Richmond Manufacturing Index is out at 10 AM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 8:15 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 8:15 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 8:15 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 downside as the USD and Bonds were both trading higher. The markets didn’t disappoint as the Dow dropped 42 points and the other indices gained 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 downside even though thru-out most of the day yesterday it didn’t look that way. It wasn’t until after 2 PM EST yesterday that the markets fell and remained lower until the closing bell. This was strict adherence to our rules of Market Correlation. Apple’s profits rose by 33% over the past quarter due to explosive sales of the IPhone and growth in China. Apple is also boosting its dividends by 11% so it seems the larger screen IPhone did help bolster sales. Next quarter we’ll probably be talking about the IWatch which just went on sale last Friday.
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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