Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:55 AM EST, here’s what we see:
US Dollar: Up at 87.740, the US Dollar is up 95 ticks and is trading at 87.740.
Energies: December Crude is down at 74.54
Financials: The Dec 30 year bond is up 3 ticks and trading at 141.25.
Indices: The Dec S&P 500 emini ES contract is down 7 ticks and trading at 2046.75.
Gold: The December gold contract is trading up at 1197.50 and is up 4 ticks from its close.
Initial Conclusion
This is not a correlated market. The dollar is up+ and oil is down- which is normal and 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 down which is not correlated. Gold is trading higher 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.
Asia traded mainly lower with the exception of the Singapore exchange which traded fractionally higher. As of this writing all of Europe is trading mainly higher with the exception of the London exchange.
Possible Challenges To Traders Today
Building Permits are out at 8:30 AM EST. This is major.
Housing Starts are out at 8:30 AM EST. This is major.
Crude Oil Inventories is out at 10:30 AM EST. This could move the crude market.
FOMC Meeting Minutes are out at 2 PM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 9 AM EST after the PPI numbers 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 9 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 9 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 neutral as the markets didn’t give any indication in terms of direction. The Dow gained 40 points and the other indices rose as well. Today we aren’t dealing with a correlated market and our bias is to the downside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday our bias was neutral as the markets didn’t give any sense in terms of direction. Yesterday in our Market Bias video we suggested that a good strategy would be to wait until the economic news was released and then determine direction and trade accordingly. Yesterday the NAHB housing numbers was released that showed an indication of 58 versus 55 expected. This means that home builders are very bullish on the real estate market. No sooner was this released when the markets took off and never looked back. Today we have Housing Starts and Building Permits which could confirm or dispel the home builders bullish stance. These are proven market movers so we’ll see how the market reacts.
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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