Nick Mastrandrea
Market Tea Leaves
US Dollar: Dec. USD is Up at 97.450.
Energies: Jan '19 Crude is Down at 52.33.
Financials: The Mar 30 year bond is Up 20 ticks and trading at 143.02.
Indices: The Dec S&P 500 emini ES contract is 112 ticks Lower and trading at 2617.50.
Gold: The Feb Gold contract is trading Down at 1242.40. Gold is 50 ticks Lower than its close.
Initial Conclusion
This is a nearly correlated market. 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 S&P is Lower and Crude is trading Lower which is not correlated. Gold is trading Down- which is correlated with the US dollar trading Higher. 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.
At this hour all of Asia is trading to the Downside. At the current time all of Europe is trading Lower as well.
Possible Challenges To Traders Today
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Core Retail Sales is out at 8:30 AM EST. This is major.
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Retail Sales is out at 8:30 AM EST. This is major.
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Capacity Utilization Rate is out at 9:15 AM EST. Major.
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Industrial Production is out at 9:15 AM EST. This is major.
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Flash Manufacturing PMI is out at 9:45 AM. Major.
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Flash Services PMI is out at 9:45 AM. This is major.
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Business Inventories is out at 10 AM EST. This is major.
Treasuries
We've elected to switch gears a bit and show correlation between the 30 year bond (ZB) and The YM futures contract. The YM contract is the DJIA and the purpose is to show reverse correlation between the two instruments. Remember it's liken to a seesaw, when up goes up the other should go down and vice versa.
Yesterday the ZB made it's move at around 8 AM EST. The ZB hit a High at around that time and the YM hit a Low. If you look at the charts below ZB gave a signal at around 8 AM EST and the YM was moving Higher at the same time. Look at the charts below and you'll see a pattern for both assets. ZB hit a High at around 8 AM and the YM was moving Higher at the same time. These charts represent the newest version of MultiCharts and I've changed the timeframe to a 30 minute chart to display better. This represented a Shorting opportunity on the 30 year bond, as a trader you could have netted about 15 ticks per contract on this trade. Each tick is worth $31.25. Please note: the front month for the ZB contract is now March, 2019
Charts Courtesy of MultiCharts built on an AMP platform.
Bias
Yesterday we gave the markets a Neutral bias as we didn't see much in the way of correlation. The Dow gained 70 points but the S&P and Nasdaq both lost ground in Thursday's trading. All in all a Mixed or Neutral day. Today we are dealing with a nearly correlated market and our bias is to the Downside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
In recent years at around this time of year the talk has always been "will we see a Santa Claus rally this year?" This is because in recent years there's always been a "holiday or Santa Claus" rally. Maybe it's because its December and close to the holidays. From our perspective the markets have runup quite a bit this year and given that next week there's an FOMC Meeting; the one aspect that could provoke a Santa Claus rally is if the Fed decides to hike or not. Most pundits and analysts believe that the Fed will hike one more time in 2018 so the key will be the what is discussed at the press conference following the release. Our belief is if the Fed decides to forego a rate hike at next week's meeting, that will clearly set off a rally. If they hike and have a dovish stance in the announcement, we may see a toned down upswing however if this isn't the case then in all likelihood we won't see an upswing. But as in all things, only time will tell....
On Thursday, April 5th we had the honor and privilege to be interviewed by David Lincoln on his You Tube channel. David is a floor trader for the options markets. If you listen to this interview, you will enjoy it.
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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