Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:40 AM EST, here’s what we see:
US Dollar: Up at 97.390 the US Dollar is up 124 ticks and trading at 97.390.
Energies: April Crude is up at 37.02.
Financials: The June 30 year bond is down 23 ticks and trading at 163.06.
Indices: The Mar S&P 500 emini ES contract is up 32 ticks and trading at 1989.00.
Gold: The April gold contract is trading down at 1257.80. Gold is 51 ticks lower than its close.
Initial Conclusion
This is not a correlated market. The dollar is up+ and crude is down- 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 lower with the exception of the Sensex and Singapore exchanges which traded higher. As of this writing all of Europe is trading higher.
Possible Challenges To Traders Today
- Wholesale Inventories m/m is out at 10 AM EST. This is not major.
- Crude Oil Inventories is out at 10:30 AM EST. This is major.
- 10-y Bond Auction starts at 1 PM EST. This could affect afternoon trading.
Currencies
Yesterday the Swiss Franc made it’s move at around 10:15 AM EST with no real economic news to speak of. 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 10:15 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 high at around 10:15 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 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 we were just following our rules of market correlation. The Dow dropped 110 points and the other indices lost ground as well. Today we aren’t dealing with a correlated market however our bias is to the upside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
So yesterday was Super Tuesday 2 as Michigan, Mississippi, Idaho and Hawaii held their primaries. The markets themselves didn’t go very far as the Dow opened down and remained there for the remainder of the trading session. We gave a downside bias as all we did was to follow our rules of market correlation which called for a downside day. These rules are available to all subscribers and as a subscriber you’ll receive Market Tea Leaves in the early AM hours along with our daily Market Bias video which details how we came to our conclusion. I don’t know if you caught the Democratic Debate this past Sunday but if Hilary wins and Trump wins the GOP, she’ll have a tough time debating Donald. Hilary as of late likes to take the high road but that won’t matter to the Donald as he’ll go for the jugular. Trump has a take no prisoners attitude and whereas it entertaining to say the least; it’ll probably cause some discomfort to the Hilary fans. One things for certain, this won’t be a boring election.
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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