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 88.400 the US Dollar is up 100 ticks and is trading at 88.400.
Energies: January Crude is down at 55.49.
Financials: The Mar 30 year bond is down 6 ticks and trading at 145.19.
Indices: The Mar S&P 500 emini ES contract is up 41 ticks and trading at 1975.25.
Gold: The February gold contract is trading up at 1197.50 and is up 32 ticks from its close.
Initial Conclusion
This is not a correlated market. The dollar is up+ and oil is down- which is normal but the 30 year bond is trading down. 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 down which is 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 mixed with half the exchanges trading lower and the other half higher. As of this writing all of Europe is trading lower.
Possible Challenges To Traders Today
CPI m/m is out at 8:30 AM EST. This is major..
Core CPI m/m is out at 8:30 AM EST. This is major..
Current Account is out at 8:30 AM EST. This is not major.
Crude Oil Inventories are out at 10:30 AM EST. This could move the crude market.
FOMC Economic Projections is out at 2 PM EST. This is major.
FOMC Statement is out at 2 PM EST. This is major.
Federal Funds Rate is out at 2 PM EST. This is major.
FOMC Press Conference starts at 2:30 PM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 8 AM EST prior to the 8:30 AM economic news release. 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 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 AM EST and the Swiss Franc hit a high. These charts represent the latest version of Trend Following Trades and I’ve changed the timeframe to a Renko chart to display better. 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 upside however the markets had other ideas as all the indices dropped into negative territory. Today is FOMC Day and as such our bias is neutral. A neutral bias means the markets could go in any direction today.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday we said our bias was to the upside as both the USD and Crude were trading lower. Ordinarily this is a very positive sign for an upside day. Then we heard that the Russians in a move to prevent a collapse of their ruble raised interest rates from 10.5% to 17%. Unfortunately the opposite occurred as the ruble fell even more; however the real casualty was all the other global markets as Europe (which started off higher) dropped like a rock and in the US a nearly perfectly correlated market to the upside dropped as well.
Today is FOMC Day and whereas we don’t expect the Fed to raise interest rates any time soon, all eyes will be on what is said at 2 PM EST in terms of language used. Everyone expects the term “considerable time” to be omitted. Additionally the Fed will hold a press conference at 2:30 PM EST and each time they do this you know something major is afoot. Personally, I’m in the Bill Gross camp as Bill stated this week that everyone is forgetting about inflation going to 2 plus percent before the Fed raises rates. The situation is that the US isn’t experiencing any inflation, especially with oil going as low as it has. This just might stun the hawks a bit as there’s already talk of no XL pipeline needed.
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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