Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 5:05 AM EST, here’s what we see:
US Dollar: Up at 98.400 the US Dollar is up 156 ticks and trading at 98.400.
Energies: February Crude is up at 36.46
Financials: The Mar 30 year bond is down 4 ticks and trading at 154.29.
Indices: The Mar S&P 500 emini ES contract is up 11 ticks and trading at 2038.75.
Gold: The Feb gold contract is trading down at 1071.20. Gold is 29 ticks lower than its close.
Initial Conclusion
This is a 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 higher 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.
Asia traded mainly higher with the exception of the Nikkei and Shanghai exchanges which traded lower. As of this writing Europe is trading mainly higher.
Possible Challenges To Traders Today
- Core Durable Goods Orders m/m is out at 8:30 AM EST. This is major..
- Durable Goods Orders m/m is out at 8:30 AM EST. This is major.
- Core PCE Price Index m/m is out at 8:30 AM EST. This is major.
- Personal Spending m/m is out at 8:30 AM EST. This is major.
- Personal Income m/m is out at 8:30 AM EST. This is major.
- New Home Sales is out at 10 AM EST. This is major.
- Revised UoM Consumer Sentiment is out at 10 AM EST. This is not major.
- Revised UoM Inflation Expectations is out at 10 AM EST. This is not major.
- Crude Oil Inventories is out at 10:30 AM EST. This could move crude.
Currencies
Yesterday the Swiss Franc made it’s move at around 8:40 AM EST after the 8:30 AM news 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 8:40 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 8:40 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 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 downside as crude and the bonds were both trading higher yesterday morning. The Dow gained 165 points and the other indices gained ground as well. Today our bias is neutral.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Well it looks as though Santa decided to stick around a little longer as the markets gained in yesterday’s trading session. This despite not too stellar economic news. Some of you may be asking “well how could that be”? “Yesterday you claimed a downside bias.” We also say each and everyday “this could change.” So what happened? The markets went higher because they wanted to go higher, why? Because this year we didn’t have a Santa Claus rally as in previous years and traders and the Smart Money wanted to drive it higher just prior to a major holiday. On another note, we all have something to be grateful for at Christmas. For some it may be the freedom to trade, for others it could be good health. Whatever the reason we hope you’ll spend some time this Christmas thinking about what you have to be grateful for. Tomorrow is an abbreviated session and the markets won’t open until Monday, 12/28. We will have Unemployment Claims and Natural Gas Storage reported on Thursday.
We wish each of you a joyous holiday season. We’ll be back on Monday, 12/28.
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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