Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:50 AM EST, here’s what we see:
US Dollar: Down at 94.775 the US Dollar is down 108 ticks and trading at 94.775.
Energies: November Crude is up at 49.92.
Financials: The Dec 30 year bond is unchanged and trading at 156.29.
Indices: The Dec S&P 500 emini ES contract is up 4 ticks and trading at 2008.50.
Gold: The October gold contract is trading up at 1163.60. Gold is 77 ticks higher than its close.
Initial Conclusion
This is a not a correlated market. The dollar is down- and crude is up+ which is normal but the 30 year bond is trading unchanged. 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 up which is 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.
Asia traded higher with the exception of the Indian Sensex exchange which traded lower. As of this writing Europe is trading mixed with half the exchanges higher and the other half lower.
Possible Challenges To Traders Today
- FOMC Member Lockhart Speaks at 8:10 AM EST. This is major.
- FOMC Member Evans Speaks at 10:30 AM EST. This is major.
- FOMC Member Brainard Speaks at 4:30 PM EST. This is major.
Currencies
On Friday the Swiss Franc made it’s move at around 8:35 AM EST immediately after Import Prices came out. The USD hit a low at around that time and the Swiss Franc hit a high. If you look at the charts below the USD gave a signal at around 8:35 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 low at around 8:35 AM EST and the Swiss Franc hit a high. 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 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 to the downside as Crude, the Bonds and Gold were all trading higher. Ordinarily this does not bode well for an upside day and up until the last hour of trading on Friday the markets did trade lower. After 3 PM however the markets changed direction and the Dow closed up by 33 points. The other indices closed higher as well. 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
Thursday evening after the market closed Alcoa reported earnings as the unofficial start of earnings season. Alcoa missed by 7 cents (analysts expected 14 cents per share) and blamed the Chinese slowdown. One would have thought that this would be enough to send the markets reeling but that didn’t happen. The markets traded lower on Friday for most of the session but teh Smart Money got into the act and decided that they didn’t want the markets to close lower after Asia and Europe both had up sessions. But as we say each day in this newsletter, this could change. Today we have no other economic news other than 3 Federal Reserve members speaking. Could this move the markets and change direction? Absolutely, as we have no idea what they’ll say.
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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