Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:20 AM EST, here’s what we see:
US Dollar: Up at 95.395 the US Dollar is up 91 ticks and trading at 95.395.
Energies: May Crude is down at 41.44.
Financials: The June 30 year bond is up 20 ticks and trading at 162.11.
Indices: The June S&P 500 emini ES contract is down 33 ticks and trading at 2034.50.
Gold: The April gold contract is trading up at 1258.00. Gold is 138 ticks higher than its close.
Initial Conclusion
This is mainly correlated market, however at the present time it is correlated to the downside. The dollar is up+ and crude is down- which is normal and 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.
Asia traded mainly lower with the exception the Aussie and Japanese Nikkei exchanges which traded higher. As of 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.
- Flash Manufacturing PMI is out at 9:45 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 8:30 AM EST before Existing Home Sales was 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 8:30 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 8:30 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 ticks plus 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 neutral bias as the futures didn’t have any sense of direction yesterday morning. The Dow gained 22 points and the other indices gained ground as well although fractionally. Today we are dealing with a mainly correlated market however it’s correlated to the downside hence our bias is to the downside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
We gave the markets a neutral bias yesterday as the futures didn’t seem to have any sense of direction whatsoever and after the session opened the markets were all over the map. First up, then down, then up again. A perfect recipe for a directionless day. For those of you who are new to us a neutral bias means the markets could go in any direction. Existing Home Sales came in less than expected at 5.08 m versus 5.32m expected. Given that this was the only economic news yesterday it certainly had an impact. Today we have HPI, Richmond Manufacturing & Flash Manufacturing index; so this may have more of an impact on today’s session.
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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