Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:30 AM EST, here’s what we see:
US Dollar: Up at 99.425 the US Dollar is up 19 ticks and trading at 99.425.
Energies: March Crude is down at 29.67.
Financials: The Mar 30 year bond is up 29 ticks and trading at 160.17.
Indices: The Mar S&P 500 emini ES contract is down 42 ticks and trading at 1859.75.
Gold: The Feb gold contract is trading up at 1113.80. Gold is 85 ticks higher than its close.
Initial Conclusion
This is not a correlated market. The dollar is up+ and crude is down- which is normal but 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 up which is not 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.
All of Asia traded lower with the exception of the Sensex exchange which traded higher. As this writing all of Europe is trading lower.
Possible Challenges To Traders Today
- HPI m/m is out at 9 AM EST. This is major.
- S&P/CS Composite-20 HPI y/y is out at 9 AM EST. This is major.
- Flash Services PMI is out at 9:45 AM EST. This is not major.
- CB Consumer Confidence is out at 10 AM EST. This is major.
- Richmond Manufacturing Index is out at 10 AM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 9:45 AM EST with no economic news reported. 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 9:45 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 around 9:45 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 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 both the Bonds and Gold were trading up and usually this is indicative of an downside move. We were correct in that the Dow dropped 209 points and the other indices lost ground as well. Today we aren’t dealing with a correlated market and our bias is to the downside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Well it was bound to happen sooner or later especially after two up days in a row. It would appear that traders were more apt to taking profits and money off the table as yesterday didn’t appear to be an upside day. This is not unusual given the volatility we’ve experienced this month. The majority of January has been to the downside so any opportunity to profit and take money off the table is welcomed. Whereas yesterday we didn’t have any economic news to move the markets; today we have 5, most of which are major. So time will tell how this day bodes.
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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