Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 5:45 AM EST, here’s what we see:
US Dollar: Down at 80.855, the US Dollar is down 10 ticks and is trading at 80.855.
Energies: September Crude is down at 102.18.
Financials: The Sept 30 year bond is down 2 ticks and trading at 138.16.
Indices: The Sept S&P 500 emini ES contract is up 12 ticks and trading at 1978.00.
Gold: The August gold contract is trading up at 1308.20 and is up 19 ticks from its close.
Initial Conclusion
This is not correlated market. The dollar is down- and oil is down- which is not normal and 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 the US dollar is trading down which is correlated. Gold is trading higher 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.
All of Asia traded higher except the Japanese Nikkei which traded down fractionally. As of this writing all of Europe is trading is trading higher.
Possible Challenges To Traders Today
No major economic news.
Lack of economic news.
Crude Oil Inventories are out at 10:30 AM EST. This could move the crude oil market.
Currencies
Yesterday the Swiss Franc made it’s move at 8:35 AM EST after the CPI numbers came out. The USD hit a high at around that time and the Swiss Franc hit a low. If you look at the charts below the USD gave a signal at 8:35 AM EST, while the Swiss Franc also gave a signal at just about the same time. Look at the charts below and you’ll see a pattern for both assets. The USD hit a high at 8:35 AM EST and the Swiss Franc hit a low. I’ve changed the charts to reflect a 5 minute time frame and added a Darvas Box to make it more clear. This represented a shorting opportunity on the Swiss Franc, as a trader you could have netted 20 plus ticks on this trade. Remember each tick on the Swiss Franc is equal to $12.50 versus $10.00 that we usually see for currencies.
USD to Swiss Franc
How to Trade the Swiss Franc in a Volatile Market
As an add-on to the above video, we created a new one I trust you’ll find interesting and thought provoking.
Charts Courtesy of Trend Following Trades built on a NinjaTrader platform
Bias
Yesterday we said our bias was to the upside as Europe was trading higher and the Bonds were correlated to the upside. The Dow gained 62 points and the other indices gained ground 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
Yesterday we said the markets would go higher and they did. The Dow gained 62 points and the other indices gained ground as well. The economic news reported yesterday was all positive which obviously helps. In earnings news, Apple reported earnings per share of $1.28 versus $1.23 expected by analysts. Apple is also expected to release a larger sized IPhone this fall even though the late Steve Jobs was against a larger IPhone. The last time we mentioned anything about Apple, they had just reported a stock split which sent their shares down to the low 70′s area. If you look at those shares now, it’s in the low $90′s per share area. Clearly they are making products that people want and will pay for.
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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