Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:55 AM EST, here’s what we see:
US Dollar: Down at 87.770, the US Dollar is down 240 ticks and is trading at 87.770.
Energies: December Crude is up at 75.19
Financials: The Dec 30 year bond is up 6 ticks and trading at 141.18.
Indices: The Dec S&P 500 emini ES contract is down 7 ticks and trading at 2038.00.
Gold: The December gold contract is trading up at 1196.00 and is up 125 ticks from its close.
Initial Conclusion
This is not a correlated market. The dollar is down-+ and oil is up+ which is normal but the 30 year bond is trading up. 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 down and Crude is trading up 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.
Asia traded mixed with half the exchanges trading higher and the other half lower.. As of this writing all of Europe is trading higher.
Possible Challenges To Traders Today
Core PPI m/m is out at 8:30 AM EST. This is major.
PPI m/m is out at 8:30 AM EST. This is major.
NAHB Housing Market Index is out at 10 AM EST. This is major.
FOMC Member Kocherlakota Speaks at 1:30 PM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 8:40 AM EST after the Empire State Manufacturing number was released. The USD hit a low at around that time and the Swiss Franc hit a high. If you look at the charts below the USD gave a signal at around 8:40 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 low at 8:40 AM EST and the Swiss Franc hit a high. 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.
Charts Courtesy of Trend Following Trades built on a NinjaTrader platform
Bias
Yesterday we said our bias was to the downside as both the USD and the Bonds were trading higher. As such the Dow gained 13 points but the Nasdaq dropped 18 and the S&P advanced by 1 point. Today we aren’t dealing with a correlated market and our bias is neutral which means the market could go in any direction.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Today we learned that the Japanese economy officially went into recession as their GDP was reported Sunday night and it dropped by 1.6% versus a gain expected. As I understand one of the reasons why this happened is because Japan adopted an across the board, country wide VAT as they were concerned about the lack of revenue. This should send a notice to all countries attempting to do the same; raising taxes doesn’t work, a thriving, growing, vibrant economy does. All this being said our bias yesterday was to the downside and whereas the Dow gained, the Nasdaq did not. This is the reverse of what happened on Friday. The question is will we see this tug of war waged today? Only time will tell…
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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