Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
US Dollar: Down at 94.190 the US Dollar is down 815 ticks and trading at 94.190.
Energies: October Crude is down at 39.25.
Financials: The Sept 30 year bond is up 41 ticks and trading at 161.15.
Indices: The Sept S&P 500 emini ES contract is down 167 ticks and trading at 1929.75.
Gold: The October gold contract is trading down at 1159.00. Gold is 2 ticks lower than 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 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 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.
All of Asia traded mainly lower with some exchanges trading in negative quadruple digit territory. As of this writing all of Europe is trading lower.
Possible Challenges To Traders Today
- FOMC Member Lockhart Speaks at 3:55 PM EST. This could impact Tuesday trading..
Currencies
On Friday the Swiss Franc made it’s move around 10 AM EST after the Flash Manufacturing PMI 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 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
On Friday we said our bias was neutral as we didn’t see any follow thru on the indices hence a neutral bias which means the markets could go in any direction. The Dow dropped by 531 points and the other indices fell as well. Today we aren’t dealing with a correlated markets and our bias is to the downside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Should we say it? The markets are coyote ugly as the Dow fell 531 points on Friday. The last time we saw something like this was 2008 during the height of the financial crisis. For those who’ve been trading less than 5 years; you’ve never witnessed something like this. So why is this happening? Fear. Fear because China posted a slowdown in manufacturing activity and by many standards they are now the world leaders in manufacturing. Fear that the Fed will raise rates in September and the economy isn’t ready or strong enough to sustain it. If anyone is wondering why Donald Trump is making spectacular headway in the polls, they shouldn’t be wondering too long. Mr. Trump is striking a chord with the American people who are tired of the mealy mouth nonsense they’re getting out of DC. The American people want decisive action and are tired of politics as usual. They would welcome someone who isn’t a politician. The American people are tired of being told “we’re in a recovery”. Really? Then why doesn’t it feel like a recovery? Why is it that Americans don’t feel a recovery in their paychecks? Can Americans feel free to leave a job and perhaps get a better one? I don’t think so. The American people know what a recovery is and this is not it. So Federal Reserve, you should consider this BEFORE raising rates because if you do so you’ll certainly throw a monkey wrench into this “recovery”.
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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