Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:35 AM EST, here’s what we see:
US Dollar: Down at 99.090 the US Dollar is down 170 ticks and trading at 99.090.
Energies: December Crude is up at 44.57.
Financials: The Dec 30 year bond is down 3 ticks and trading at 152.07.
Indices: The Dec S&P 500 emini ES contract is down 19 ticks and trading at 2089.00.
Gold: The December gold contract is trading up at 1093.00. Gold is 53 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 and 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 down and Crude is trading up which is correlated. Gold is trading up 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.
Asia traded mainly lower with the exception of the Japanese Nikkei and Shanghai exchanges which traded higher. As of this writing all of Europe is trading lower with the exception of the London exchange which is trading higher.
Possible Challenges To Traders Today
- Labor Market Conditions Index m/m is out at 10 AM EST. This is major.
- Lack of major economic news.
Currencies
On Friday the Swiss Franc made it’s move at around 8:30 AM EST after Non-Farm Payrolls 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 8:30 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 low at around 8:30 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 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
Given that Friday was Jobs Friday we maintained a neutral bias which meant the markets could go in any direction. The Dow gained 47 points, the Nasdaq gained 19 and the S&P dropped 1 point. Today we aren’t dealing with a correlated market however our bias is neutral.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Another Jobs Friday and already the analysts and pundits are clamoring for a rate hike in December. It seems the US added 271,000 new jobs and the Unemployment Rate (official) dropped to 5% versus the 5.1% that it was previously. At first the markets didn’t like the news as it meant the odds for the Fed hiking rates in December increased dramatically.
The above shows the DJIA for Friday, 11/6/15. The top dot on the far left shows where the Dow was at market open (9:30 AM EST), by 10 AM the Dow dropped to its low of the day but slowed gained steam to close for a gain. The long term unemployed continue to be an issue as that rate hasn’t dropped much.
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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Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
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Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.