Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:50 AM EST, here’s what we see:
US Dollar: Up at 88.090, the US Dollar is up 423 ticks and is trading at 88.090.
Energies: January Crude is up at 76.19
Financials: The Dec 30 year bond is up 8 ticks and trading at 141.26.
Indices: The Dec S&P 500 emini ES contract is up 24 ticks and trading at 2058.00.
Gold: The December gold contract is trading down at 1190.30 and is down 6 ticks from its close.
Initial Conclusion
This is not a correlated market. The dollar is up+ and oil is up+ which is not 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 up and Crude is trading up which is not correlated. Gold is trading lower which is 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.
All of Asia traded to the upside. As of this writing all of Europe is trading higher.
Possible Challenges To Traders Today
1. Lack of major economic news.
2. No economic news for the US markets.
Currencies
Yesterday the Swiss Franc made it’s move at around 8:40 AM EST after Unemployment Claims 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 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 high at 8:40 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 long 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 US dollar and the Bonds were trading higher and this does not bode for an upside day. However the markets had other ideas and all the indices closed to the upside. Today we aren’t dealing with a correlated and our bias is neutral.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday our bias was to the downside as both the US Dollar and the Bonds were trading higher and this doesn’t bode for an upside day. However we also stated that we had a virtual tsunami of economic news, most of which were major and could drive the markets in any direction. Additionally as we state each day in this newsletter: this could change. Yesterday we had two sets of news at different times: 8:30 AM and 10 AM. It was the 10 AM news that set the markets on fire as all that data exceeded expectation. Existing Home Sales and Philly Fed Manufacturing index exceeded expectation and the markets took off. Ironically today we have no economic news.
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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