Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:45 AM EST, here’s what we see:
US Dollar: Up at 98.780 the US Dollar is up 508 ticks and trading at 98.780.
Energies: February Crude is up at 33.53.
Financials: The Mar 30 year bond is down 18 ticks and trading at 155.14.
Indices: The Mar S&P 500 emini ES contract is up 89 ticks and trading at 1955.25.
Gold: The Feb gold contract is trading down at 1096.20. Gold is 116 ticks lower than its close.
Initial Conclusion
This is 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 Aussie and Japanese Nikkei exchanges which traded lower. As this writing all of Europe is trading higher.
Possible Challenges To Traders Today
- Average Hourly Earnings m/m is out at 8:30 AM EST. This is major.
- Non-Farm Employment Change is out at 8:30 AM EST. This is major.
- Unemployment Rate is out at 8:30 AM EST. This is major.
- Wholesale Inventories m/m is out at 10 AM EST. This is not major.
- Consumer Credit m/m is out at 3 PM EST. This is not major.
Currencies
Yesterday the Swiss Franc made it’s move at around 8:15 AM EST before Unemployment Claims 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 8:15 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 8:15 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 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 a downside bias as Bonds and Gold were trading higher and that doesn’t bode well for an upside day. The Dow dropped 393 points and the other indices dropped as well. Today given that it is Non Farm Payrolls or as we call it Jobs Friday our bias is neutral.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday the markets opened to the downside as it was reported that the Chinese exchanges were only open 30 minutes and their markets had to shutdown due to circuit breaker rules. In essence what that means is the markets will shut down when moving quickly to the downside. In The United States we used to call this “curbs in”. The Chinese have since gone away from their circuit breaker rule and their market has stabilized somewhat; although time will tell how this plays out. Thus far the Dow has dropped about a thousand points over the past week and obviously this isn’t the way to start the New Year. Today we have Non Farm Payrolls out at 8:30 AM EST and there isn’t a bigger market mover; not only for today’s market but this may have some bearing for the next FOMC Meeting on January 27th. For those of you who are new to us, a neutral bias means the markets could go in any direction. There are two days in a month that we always maintain a neutral bias: Jobs Friday (today) and the FOMC Meeting.
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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