Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:20 AM EST, here’s what we see:
US Dollar: Up at 96.935 the US Dollar is up 72 ticks and trading at 96.935.
Energies: September Crude is down at 47.57.
Financials: The Sept 30 year bond is down 5 ticks and trading at 154.23.
Indices: The Sept S&P 500 emini ES contract is up 14 ticks and trading at 2090.75.
Gold: The August gold contract is trading down at 1096.10 Gold is 1 tick lower than its close.
Initial Conclusion
This is a nearly correlated market and it’s correlated to the upside. The dollar is up+ and oil is down- which is normal but the 30 year bond is trading lower. 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 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.
All of Asia traded higher with the exception of the Japanese Nikkei exchange which traded lower. As of this writing all of Europe is trading higher with the exception of the Milan exchange which is trading lower.
Possible Challenges To Traders Today
- Pending Home Sales m/m is out at 10 AM EST. This is major.
- Crude Oil Inventories is out at 10:30 AM EST. This could move the crude market.
- FOMC Statement is out at 2 PM EST. This is major.
- Federal Funds Rate is out at 2 PM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move around 8:30 AM EST before any economic news was reported. 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 around 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 shorting opportunity on the Swiss Franc, as a trader you could have netted about 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 as both the Crude and the Bonds were trading down and this does bode well for an upside day. The markets didn’t disappoint as the Dow gained 189 points and the other indices gained ground as well. Given that it is FOMC Day we will maintain a neutral bias.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday we said our bias was to the upside as the Bonds and Crude were trading much lower. This is nothing more than our own rules of market correlation in action. The economic news reported did not meet expectation but that didn’t matter as after a number of days trading to the downside; the markets saw fir to advance. Today of course is FOMC Day and as such our bias is neutral. Remember that a neutral bias means the markets could go in any direction. We always maintain a neutral bias on FOMC Day as historically speaking the markets rarely (if ever) react with any sense of normalcy.
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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