Lessons Mom Taught

Nick Mastrandrea Market Tea Leaves

Good Morning Traders,

As of this writing 4 AM EST, here’s what we see:

US Dollar: Jun. USD is Up at 97.535.
Energies: Jun Crude is Down at 48.92.
Financials: The June 30 year bond is Down 5 ticks and trading at 153.20.
Indices: The June S&P 500 emini ES contract is 7 ticks Higher and trading at 2359.25.
Gold: The June gold contract is trading Down at 1258.00. Gold is 7 ticks 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 Up+ and Crude is trading Down- which is 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.

At this hour all of Asia is trading Lower. As of this writing all of Europe is trading lower as well.

Possible Challenges To Traders Today

– Unemployment Claims are out at 8:30 AM EST. This is major.

– Philly Fed Manufacturing Index is out at 8:30 AM. This is major.

– CB Leading Index m/m is out at 10 AM EST. This is major.

– Natural Gas Storage is out at 10:30 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 10 AM EST with no real economic news in sight. The ZB hit a low at around that time and the YM hit a high. If you look at the charts below ZB gave a signal at around 10 AM and the YM was moving lower at the same time. Look at the charts below and you’ll see a pattern for both assets. ZB hit a low at around 10 AM and the YM hit a high. These charts represent the newest version of Trend Following Trades and I’ve changed the timeframe to a 30 minute chart to display better. This represented a long opportunity on the 30 year bond, as a trader you could have netted about 30 ticks per contract on this trade. Each tick is worth $31.25. We added a Donchian Channel to the charts to show the signals more clearly.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform.

Bias

Yesterday we gave the markets a downside bias as both the Bonds and Gold were trading higher and this is indicative of a downside day, hence the downside bias. The Dow dropped 373 points and the S&P and Nasdaq lost ground as well. Today our bias is to the upside.

Could this change? Of Course. Remember anything can happen in a volatile market.

Commentary

Given that this past Sunday was Mothers Day, it reminded me of some pearls of wisdom that my mother spoke of (and in all likelihood most mothers speak of) when I was much younger. It seems that this market rises and falls on the actions of the individual who resides in the White House. Last week after firing the Director of the FBI, the markets fell each subsequent day and now it appears as though the President was deliberately trying to obstruct justice by asking the then active Director Comey to lay off Michael Flynn stating that ‘he’s a good man”. Well we can say that Dick Nixon was a good man too. After all didn’t he establish the EPA to give us all clean air? That’s a pretty good man, wasn’t he ? Too bad he had to resign because he obstructed justice too. This President needs to learn that the practice of speaking one’s mind is best kept in your own mind. As mom used to say “sometimes the best words are those that aren’t said”. What Trump doesn’t realize is that every word he says will be dissected and used either for him or against him and every President has had to deal with this dilemma. The markets dropped by triple digits yesterday because the establishment is concerned that Trump won’t be able to deliver what he promised and quite frankly they’re right to be concerned.

Author

Nick Mastrandrea

Market Tea Leaves

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.