Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:10 AM EST, here’s what we see:
US Dollar: Down at 98.225 the US Dollar is down 63 ticks and trading at 98.225.
Energies: January Crude is down at 36.78.
Financials: The Mar 30 year bond is down 4 ticks and trading at 154.19.
Indices: The Dec S&P 500 emini ES contract is up 15 ticks and trading at 2040.75.
Gold: The Feb gold contract is trading up at 1065.40. Gold is 38 ticks higher than its close.
Initial Conclusion
This is a not a correlated market. The dollar is down- and crude is down- which is not 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 up and Crude is trading lower which is 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.
All of Asia traded higher. As of this writing Europe is trading mainly lower with the exception of the London exchange which is trading fractionally higher at this hour.
Possible Challenges To Traders Today
- Building Permits are out at 8:30 AM EST. This is major.
- Housing Starts are out at 8:30 AM EST. this is major.
- Capacity Utilization Rate is out at 9:15 AM EST. This is major.
- Industrial Production m/m is out at 9:15 AM EST. This is major.
- Flash Manufacturing PMI is out at 9:45 AM EST. This is major
- Crude Oil Inventories is out at 10:30 AM EST. This is major.
- FOMC Economic Projections is out at 2 PM EST. This is major.
- FOMC Statement is out at 2 PM EST. This is major.
- Federal Funds Rate is out at 2 PM EST. This is major.
- FOMC Press Conference starts at 2 PM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 9:15 AM EST after the 8:30 news numbers 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 9:15 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 9:15 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 the $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 and the markets didn’t disappoint as the Dow gained 157 points and the other indices gained ground as well. Given that today is FOMC Day our bias is neutral.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
The day before the FOMC announcement and the market was poised to go higher and did. From the opening bell the markets took off as though it was the last trading day ever. The economic news that came out yesterday wasn’t too stellar but that didn’t matter as the markets took off. We called an upside bias only because we used our rules of Market Correlation to guide us. Today we find out if the Fed raises. We don’t think so but anything can happen in a volatile market. We will maintain a neutral bias as the markets could go in any direction today. For those of you who are new to us we always maintain a neutral on FOMC Day and Jobs Friday as historically speaking the markets have never shown any sense of normalcy on those days.
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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