Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:40 AM EST, here’s what we see:
US Dollar: Down at 92.965, the US Dollar is down 175 ticks and is trading at 92.965.
Energies: March Crude is down at 47.27.
Financials: The Mar 30 year bond is down 29 ticks and trading at 148.06.
Indices: The Mar S&P 500 emini ES contract is up 25 ticks and trading at 2033.00.
Gold: The February gold contract is trading down at 1288.70 and is down 50 ticks from its close.
Initial Conclusion
This is not a correlated market. The dollar is down- and oil is down- which is not normal and 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 down which is correlated. Gold is trading lower which is not 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.
All of Asia traded higher. As of this writing all Europe is trading mixed with half the exchanges higher and the other half lower.
Possible Challenges To Traders Today
Minimum Bid Rate is out at 7:45 AM EST. This is major.
ECB Press Conference is out at 8:30 AM EST. This is major.
Unemployment Claims are out at 8:30 AM EST. This is major.
HPI m/m is out at 8:30 AM EST. This is major.
Natural Gas Storage is out at 10:30 AM EST. This could move the Nat Gas market.
Crude Oil Inventories are out at 11 AM EST. This could move the crude market.
Currencies
Yesterday the Swiss Franc made it’s move at around 10 AM EST with no economic news in sight. 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 10 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 10 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. We added a Donchian Channel to the charts to show the signals more clearly. 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 futures gave no indication of direction. The Dow gained 39 points and the other indices gained ground as well. Today we aren’t dealing with a correlated 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 the futures gave no indication in terms of direction. Yesterday morning both Crude and Bonds were trading higher and this is not indicative of an upside bias. The Dow was up then fell into triple digit negative territory and then moved higher. All in all the Dow traded with a 200 point trading range today and has done every trading day this year thus far. Today we have the ECB seeking to do some form of Quantitative Easing and it looks as though they’ll be buying about 60 billion worth of bonds on a monthly basis. By 60 billion we’re referring to euros, not dollars. This takes on the form of Operation Twist which the Fed employed a few years ago. I can’t get excited about this as all too often we’ve heard the same story from Mario Draghi and the ECB; only each time it turns out to be “next time”. Next time we’ll do something, next time we’ll do QE, etc. So I wouldn’t be shocked if they did nothing but hey, who knows? Maybe this time they will…..
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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