Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:35 AM EST, here’s what we see:
US Dollar: Up at 98.225 the US Dollar is up 52 ticks and trading at 98.225.
Energies: February Crude is down at 36.94.
Financials: The Mar 30 year bond is up 3 ticks and trading at 153.12.
Indices: The Mar S&P 500 emini ES contract is down 20 ticks and trading at 2067.75.
Gold: The Feb gold contract is trading lower at 1067.60. Gold is 4 ticks lower from its close.
Initial Conclusion
This is a nearly correlated market. The dollar is up+ and crude 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 down and Crude is trading lower 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 mixed with half the exchanges trading higher and the other half lower. As of this writing Europe is trading mainly lower.
Possible Challenges To Traders Today
- Pending Home Sales m/m is out at 10 AM EST. This is major.
- Crude Oil Inventories is out at 10:30 AM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 8:50 AM EST just prior to the Case-Shiller Home numbers being reported. 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 8:50 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 around 8:50 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 about 20 plus ticks per contract 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 gave the markets an upside bias and the markets didn’t disappoint as the Dow gained 193 points and the other indices gained ground as well. Today we are dealing with a nearly correlated market to the downside hence our bias is to the downside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Well it looks like Santa was going home but decided to turn around and make another pass at the markets. The Dow rose by 193 points yesterday and the other indices gained ground as well. Today we have Pending Home Sales which are considered major and at 10:30 AM EST we have the weekly crude oil inventory report which could move the crude markets. Tomorrow is New Year’s Eve and we’ll conclude the year with more economic news but unlike last week’s Christmas Eve tomorrow will be a full day session for the markets. We may think that it’s short sighted to be open a full session but we don’t make those rules. Bottom line, most traders will be heading for the exits before lunchtime…..
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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