Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 5:45 AM EST, here’s what we see:
US Dollar: Up at 81.570, the US Dollar is up 63 ticks and is trading at 81.570.
Energies: September Crude is down at 96.67.
Financials: The Sept 30 year bond is up 7 ticks and trading at 138.23.
Indices: The Sept S&P 500 emini ES contract is up 17 ticks and trading at 1919.00.
Gold: The August gold contract is trading down at 1303.30 and is down 41 ticks from its close.
Initial Conclusion
This is not correlated market. The dollar is up+ and oil is down- which is normal and 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 up and the US dollar is trading up which is not correlated. Gold is trading lower 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.
Most of Asia traded lower with the exception of the Japanese Nikkei exchange which traded higher. As of this writing Europe is trading lower with the exception of the Milan exchange which is trading higher.
Possible Challenges To Traders Today
Unemployment Claims are out at 8:30 AM EST. This is major.
Natural Gas Storage is out at 10:30 AM EST. This could move the Nat Gas markets.
Consumer Credit is out at 3 PM EST. This could affect afternoon trading.
European Minimum Bid Rate is out at 7:45 AM EST.
ECB Press Conference starts at 8:30 AM EST.
Currencies
Yesterday the Swiss Franc made it’s move at 9:50 AM EST after the Trade Balance numbers were released. 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 9:50 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 9:50 AM EST and the Swiss Franc hit a low. I’ve changed the charts to reflect a 5 minute time frame and added a Darvas Box to make it more clear. This represented a long opportunity on the Swiss Franc, as a trader you could have easily netted 10-12 ticks on this trade. 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 both the USD and the Bonds were trading higher. The markets however had other ideas as the Dow gained 14 points, the Nasdaq gained 2 and the S&P closed flat with no gain. Today we aren’t dealing with a correlated market and our bias is neutral.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday we said our bias was to the downside as both the USD and the Bonds were trading much higher. Whereas the markets opened lower after 10 AM the Dow gathered steam and started to move forward. The US markets were not deterred by the news coming out of Europe, namely that Russian troops are within 50 kilometers of the Ukraine border. Europe and Asia however were greatly affected by this news as they both fell Tuesday night into Wednesday morning. Why did US markets buck that trend? For one Trade Balance numbers came out Wednesday morning that showed a much less deficit than expected for the US. Additionally after Tuesday’s triple digit loss the Smart Money to get into the act and put capital on the table. Whereas we do not make calls based on hypothesis, the number of economic news reported this week has been far less than usual. In other words we aren’t dealing with a tsunami of reports as we did last Friday, so the markets could be dragged in either direction based on volume. Today we also have the ECB Minimum Bid Rate which is the equivalent of the Federal Funds Rate in the United States. I point this out to you because there has been occasions where the ECB made comments at their Press Conference that sent the US markets reeling. Something to be mindful of…
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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