Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:10 AM EST, here’s what we see:
US Dollar: Up at 96.565 the US Dollar is up 85 ticks and trading at 96.565.
Energies: October Crude is up at 45.86.
Financials: The Dec 30 year bond is down 2 ticks and trading at 157.09.
Indices: The Dec S&P 500 emini ES contract is up 80 ticks and trading at 1928.75.
Gold: The October gold contract is trading down at 1114.40. Gold is 11 ticks lower than its close.
Initial Conclusion
This is not a correlated market. The dollar is up+ and crude is up+ which is not 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 up 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.
All of Asia traded 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.
- Final Manufacturing PMI is out at 9:45 AM EST. This is major.
- ISM Manufacturing PMI is out at 10 AM EST. This is major.
- Construction Spending m/m is out at 10AM EST. This is major.
- ISM Manufacturing Prices is out at 10 AM EST. This is not major.
- Natural Gas Storage is out at 10:30 AM EST. This could move the Nat Gas market.
- Total Vehicle Sales – All Day
- FOMC Member Williams Speaks at 2:30 PM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 9:40 AM EST before the Chicago PMI numbers came out. 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 9:40 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 9:40 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 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 Crude, the Bonds and Gold were all trading down. The markets didn’t disappoint as the Dow gained 236 points and the other indices advanced as well. Today we aren’t dealing with a correlated market however our bias is to the upside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday we said the markets would advance and we used our rules of Market Correlation to come to that conclusion. Alot happened yesterday to drive the markets. First, it was the last trading day of the 3rd calendar quarter and despite the upside yesterday; this is the third quarterly loss in a row. That hasn’t happened for years. Second, the US Senate and House passed a stop gap bill that will keep the government running until December 11th so it appears as though a government shutdown has been averted. The GOP will still try to defund Planned Parenthood but will probably use other means to do so. Third, Russia attacked Syria in a demonstration of support which wasn’t welcomed by the United States as the Russians only informed the US an hour before it happened. I don’t think the State of Israel like this idea either as they seem to get nervous whenever Russia is in the neighborhood. Tomorrow we’ll have Non-Farm payrolls to look forward to and hopefully this will set the tone for October.
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.
Recommended Content
Editors’ Picks
EUR/USD stays below 1.0700 ahead of US data
EUR/USD stays in a consolidation phase slightly below 1.0700 in the European session on Wednesday. Upbeat IFO sentiment data from Germany helps the Euro hold its ground as market focus shifts to US Durable Goods Orders data.
USD/JPY refreshes 34-year high, attacks 155.00 as intervention risks loom
USD/JPY is renewing a multi-decade high, closing in on 155.00. Traders turn cautious on heightened risks of Japan's FX intervention. Broad US Dollar rebound aids the upside in the major. US Durable Goods data are next on tap.
Gold manages to hold above $2,300
Gold struggles to stage a rebound following Monday's sharp decline but manages to hold above $2,300. The benchmark 10-year US Treasury bond yield stays in the green above 4.6% ahead of US data, not allowing XAU/USD to gain traction.
Worldcoin looks set for comeback despite Nvidia’s 22% crash Premium
Worldcoin price is in a better position than last week's and shows signs of a potential comeback. This development occurs amid the sharp decline in the valuation of the popular GPU manufacturer Nvidia.
Three fundamentals for the week: US GDP, BoJ and the Fed's favorite inflation gauge stand out Premium
While it is hard to predict when geopolitical news erupts, the level of tension is lower – allowing for key data to have its say. This week's US figures are set to shape the Federal Reserve's decision next week – and the Bank of Japan may struggle to halt the Yen's deterioration.