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.
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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