Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:30 AM EST, here’s what we see:
US Dollar: Up at 93.635, the US Dollar is up 130 ticks and trading at 93.635.
Energies: June Crude is down at 59.52.
Financials: The June 30 year bond is up 41 ticks and trading at 154.09.
Indices: The June S&P 500 emini ES contract is up 19 ticks and trading at 2122.25.
Gold: The June gold contract is trading down at 1218.30. Gold is 68 ticks lower than 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 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 down which is correlated. Gold is trading down 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.
Asia traded mainly to the upside with the exception of the Shanghai exchange which traded lower. As of this writing all of Europe is trading higher.
Possible Challenges To Traders Today
- Empire State Manufacturing Index is out at 8:30 AM EST. This is major.
- Capacity Utilization Rate is out at 9:15 AM EST. This is not major.
- Industrial Production m/m is out at 9:15 AM EST. This is not major.
- Prelim UoM Consumer Sentiment is out at 9:55 AM EST. This is major..
- Prelim UoM Inflation Expectations is out at 9:55 AM EST. This is major.
- TIC Long-Term Purchases is out at 4 PM EST. This is not major.
Currencies
Yesterday the Swiss Franc made it’s move at around 8:45 AM EST after the economic news was reported. 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 8:45 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 around 8:45 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 shorting 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 to the upside and the markets certainly didn’t disappoint. The Dow rose 192 points and the other indices gained ground as well. Today we aren’t dealing with a correlated market and our bias is neutral.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday we said our bias was to the upside as the futures were correlated in that direction. The markets made up for lost time this week by advancing 192 points for the session. What made the difference today? PPI came in benign which means producers aren’t raising prices. Additionally Unemployment Claims came in better than expected at 264,000 versus 272,000 expected. To Top it off the former Federal Reserve Vice Chairman: Donald Kohn claims no rate hike for June. Now that may happen in the September to December period but that would be later as opposed to sooner. As we’ve been saying this entire week it would be later versus sooner as the Fed wants the economy to improve before making such a drastic step.
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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