Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:10 AM EST, here’s what we see:
US Dollar: Jun. USD is Up at 97.270.
Energies: Jun Crude is Up at 51.09.
Financials: The June 30 year bond is Up 1 tick and trading at 153.28.
Indices: The June S&P 500 emini ES contract is 1 tick Higher and trading at 2381.75.
Gold: The June gold contract is trading Up at 1254.40. Gold is 8 ticks Higher than its close.
Initial Conclusion
This is not a correlated market. The dollar is Up+ and crude is Up+ which is not 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 Up+ and Crude is trading Up+ 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.
At this hour all of Asia is trading mainly higher with the exception of Shanghai and Singapore which are trading lower at this hour. Europe is trading mixed with half the exchanges higher and the other half lower.
Possible Challenges To Traders Today
– FOMC Member Harker Speaks at 10 AM EST. This is major.
– FOMC Member Brainard Speaks at 7:30 PM EST. This is major.
– FOMC Member Evans Speaks at 9:10 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.
On Friday the ZB made it’s move at around 1 PM 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 1 PM 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 1 PM 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 15 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
On Friday we gave the markets a neutral bias as the indices had no sense of direction Friday morning hence the neutral bias. The Dow shot up 142 points and the other indices gained ground as well. Today we aren’t dealing with a correlated market and our bias is neutral.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
It seems that the market action on Friday was a continuation of what we saw on Thursday as the indices all rose on Friday. The Dow gained 142 points, the S&P 16 and the Nasdaq 29. Even Trumpspeak couldn’t keep the markets down as he called former FBI Director Comey “a nut job” when speaking with the Russian emissaries the day after Comey was fired. Of course this was reported after the market closed and Trump was flying off on his first foreign visit. It would seem that the Smart Money wants the Dow to regain the 21,000 point crown and isn’t too concerned with the going ons of DC. Or conversely it could be that the institutionals sense that Trump may be facing criminal investigations and view this as a positive. Only time will tell how this all works out but rest assured we will monitor.
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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