Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 5:15 AM EST, here’s what we see:
US Dollar: Up at 98.425 the US Dollar is up 60 ticks and trading at 98.425.
Energies: April Crude is down at 33.74.
Financials: The Mar 30 year bond is down 3 ticks and trading at 163.19.
Indices: The Mar S&P 500 emini ES contract is down 19 ticks and trading at 1973.25.
Gold: The April gold contract is trading down at 1230.70. Gold is 1 tick lower 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 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 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.
All of Asia traded higher with some exchanges in positive triple digit territory. As of this writing all of Europe is trading higher.
Possible Challenges To Traders Today
- ADP Non-Farm Employment Change is out at 8:15 AM EST. This is major.
- Crude Oil Inventories is out at 10:30 AM EST. This is major.
- Beige Book is out at 2 PM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 10 AM EST after the economic news was released. 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 10 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 10 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 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 Ninja Trader platform
Bias
Yesterday we gave the markets a neutral bias as we didn’t see much to suggest an upside yesterday morning. A neutral bias means the markets could go in any direction. The Dow gained 349 points and the other indices gained ground as well. Today we are dealing a market that has no sense of direction therefore our bias is neutral.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday we gave the markets a neutral bias as we didn’t see overwhelming evidence to suggest an upside bias. The economic news came out and they all beat expectation. The markets in turn opened higher and remained there for the rest of the session. You could say it was a market that made sense as it went up based on good economic news. Of particular interest was Total Vehicle Sales which went up last month. Now you might be thinking “how could that be when the Fed hiked rates in December”? This is very similar to what happened in the late 1970′s, early 1980′s when the US had a 13% inflation rate and the Fed was constantly raising rates to stem the inflation tide. The mindset was “buy today, buy now or pay more for it tomorrow.” That helped a lot of salespeople to sell stuff and the same adage applies today.
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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