Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:50 AM EST, here’s what we see:
US Dollar: Up at 96.470 the US Dollar is up 350 ticks and trading at 96.470.
Energies: April Crude is up at 38.61.
Financials: The June 30 year bond is down 1 tick and trading at 162.11.
Indices: The Mar S&P 500 emini ES contract is up 67 ticks and trading at 2005.50.
Gold: The April gold contract is trading down at 1266.10. Gold is 67 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.
All of Asia traded higher. As of this writing all of Europe is trading higher.
Possible Challenges To Traders Today
- Import Prices m/m are out at 8:30 AM EST. This is not major.
- Lack of major economic news
Currencies
Yesterday the Swiss Franc made it’s move at around 8:40 AM EST after the unemployment claims numbers came out. 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 8:40 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 8:40 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 Ninja Trader platform
Bias
Yesterday we gave the markets a neutral bias as the USD and the Bonds were both pointed higher but the indices were trading higher yesterday morning. Given that this isn’t correlated we called for a neutral bias. For those of you who are new to us a neutral bias means the markets could go in any direction. The Dow dropped 5 points, the Nasdaq lost 12 and the S&P came in with no gain. 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
What should have been an upside day turned into a route yesterday as Unemployment Claims came in better than expected but yesterday morning when we viewed the markets both the USD and the Bonds were trading higher and teh indices were trading higher as well. This didn’t make any sense to us as ordinarily the indices should have been trading down. So what happened? The ECB had their equivalent of a Fed Meeting yesterday and the Europeans decided that they wanted to really stimulate their banks by offering to pay the banks money to lend. We mentioned this during our Market Bias video yesterday and told our followers to be careful of this as the ECB has done similar maneuvers in the past. The market did an abrupt about face and nothing made sense. All-in-all it was a good day to stay out of the markets and keep your powder dry so to speak.
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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