Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:40 AM EST, here’s what we see:
US Dollar: Down at 94.930, the US Dollar is down 185 ticks and is trading at 94.930.
Energies: March Crude is down at 45.07.
Financials: The Mar 30 year bond is up 5 ticks and trading at 149.24.
Indices: The Mar S&P 500 emini ES contract is down 26 ticks and trading at 2047.25.
Gold: The February gold contract is trading up at 1281.20 and is up 18 ticks from its close.
Initial Conclusion
This is not a correlated market. The dollar is down- and oil is down- which is not 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 down which is not correlated. Gold is trading higher 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 mainly higher with the exception of the Shanghai and Hang Seng exchanges which traded lower. As of this writing all Europe is trading lower.
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.
S&P/CS Composite-20 HPI y/y is out at 9AM EST. This is major.
Flash Services PMI is out at 9:45 AM EST. This is not major.
CB Consumer Confidence is out at 10AM EST. This is major.
New Home Sales is out at 10 AM EST. This is major.
Richmond Manufacturing Index is out at 10AM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 8:45 AM EST with no economic news in sight. 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 8:45 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 8:45 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
Yesterday we said our bias was to the downside as the markets were nearly correlated in that direction. The Dow gained a paltry 6 points and the other indices gained fractionally 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
Yesterday we said our bias was to the downside and up until the final two minutes of the session we were correct. But then within the last two minutes the Dow jumped up to gain 6 points and the other indices gained as well although fractionally. The S&P gained 5 and the Nasdaq 14. Well it looks as though the Greeks had quite a celebration yesterday with the far left winning the election. The far left has promised higher tax revenues, and end to austerity and a renegotiation of the deal consummated in 2010. How will they achieve all this? Tax the rich. What they seem to have forgotten is that the rich are highly mobile and can pretty much live where they choose, so if they decide to become citizens of a domicile that won’t tax them so much? Oh well, I guess the Greek government won’t be getting any of that tax revenue. Oh yes, I forgot Syriza has also promised to beef up tax revenues by more stringent investigations. This is a government that never had a handle on tax revenues to begin with. This is just another example of promise them anything and deliver later…
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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