Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:40 AM EST, here’s what we see:
US Dollar: Up at 89.510 the US Dollar is up 33 ticks and is trading at 89.510.
Energies: January Crude is up at 55.23.
Financials: The Mar 30 year bond is down 19 ticks and trading at 143.05.
Indices: The Mar S&P 500 emini ES contract is up 34 ticks and trading at 2068.25.
Gold: The February gold contract is trading up at 1197.00 and is up 20 ticks from its close.
Initial Conclusion
This is not a correlated market. The dollar is up+ and oil is up+ which is not normal but 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 Crude is trading up 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 higher following the rally on Wall Street. As of this writing all of Europe is trading higher.
Possible Challenges To Traders Today
No major economic news for the US markets.
Lack of economic news.
Currencies
Yesterday the Swiss Franc made it’s move at around 9 AM EST after the economic news was reported. 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 9 AM EST and the Swiss Franc hit a low. 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 neutral as all the instruments that we track were pointed to the up side. When everything is either pointed higher or lower, there is no correlation. When there’s no correlation the market could go in any direction, hence the neutral bias. The markets didn’t disappoint as all 3 indices closed in positive territory with the Dow gaining over 400 points on the session, this hasn’t been achieved since 2011. 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 our bias was neutral as all the instruments we track were pointed higher and as we mention above; there’s no correlation when that happens. Hence a neutral bias. Today we have quadruple witching Friday which only happens 4 times a year. This will add a level of volatility that we don’t ordinarily see in the markets. What we’ll probably see is quite a bit of price volatility as traders will be rolling off existing contracts and moving into new ones. Usually this happens in the morning as after 11 AM EST is when the new monthly contracts become effective. Something to be mindful of if trading today.
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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