Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 3:35 AM EST, here's what we see:
US Dollar: Mar. USD is Down at 103.060.
Energies: February Crude is Up at 52.77.
Financials: The Mar 30 year bond is Down 3 ticks and trading at 150.15.
Indices: The March S&P 500 emini ES contract is 10 ticks Higher and trading at 2255.00.
Gold: The February gold contract is trading Up at 1164.40. Gold is 24 ticks Higher than its close.
Initial Conclusion
This is not a correlated market. The dollar is Down- and crude is Up+ which is normal and the 30 year bond is trading Down-. 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 Up+ which is not correlated. Gold is trading Up which is correlated with the US dollar trading Down. 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 higher with the exception of the Hang Seng exchange which traded lower. As of this writing Europe is trading mainly higher with the exception of the London exchange which is fractionally lower.
Possible Challenges To Traders Today
– Total Vehicle Sales – All Day. This is major.
– FOMC Meeting Minutes is out at 2 PM 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 10:30 AM EST after the economic news was reported. 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 10:30 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 low at around 10:30 AM EST 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 plus 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 Click on an image to enlarge it.
Bias
Yesterday we gave the markets an upside bias as both the Bonds and Gold were both trading higher yesterday morning and this is indicative of an upside move, hence our bias was to the upside. The Dow rose 119 points and the other indices rose as well. 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
The first day back after a long holiday weekend and we couldn't ask for a better way to start the New Year off. Ordinarily I would urge caution on the first trading day of the New Year but it was apparent that the markets wanted to rise and they did. The Dow gained 119 points and the other indices rose as well. The markets had good economic news in terms of Construction Spending and ISM but the real market mover yesterday was the news that Ford Motor Company has decided to back off building a 1.6 Billion dollar plant in Mexico and in effect has created hundreds of jobs for American workers in Detroit. Why? President-Elect Trump threaten to raise tariffs by 35% for any vehicle produced in Mexico and "exported" to the US. This is the one area that I completely agree with Trump on. He knows all too well that the only way to get the message across is to hit them in pocketbook. That's something they understand, in the meantime the current White House has booed this move claiming that other countries will raise tariffs on American mad goods exported to their countries. So whats the alternative current POTUS? Allow more American jobs to be lost because we don't have the guts to do the right thing? BS to that...
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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