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 97.445, the US Dollar is up 459 ticks and trading at 97.445.
Energies: July Crude is down at 59.77.
Financials: The June 30 year bond is down 27 ticks and trading at 156.11.
Indices: The June S&P 500 emini ES contract is up 23 ticks and trading at 2111.75.
Gold: The June gold contract is trading down at 1187.40. Gold is 20 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 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 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 Aussie and Singapore exchanges which traded lower. As of this writing all of Europe is trading higher.
Possible Challenges To Traders Today
- Core PCE Price Index m/m is out at 8:30 AM EST. This is major.
- Personal Spending m/m is out at 8:30 AM EST. This is not major.
- Personal Income m/m is out at 8:30 AM EST. This is not major.
- FOMC Member Fischer Speaks at 9:30 AM EST. This is major.
- Final Manufacturing PMI is out at 9:45 AM EST. This is not major.
- ISM Manufacturing PMI is out at 10 AM EST. This is major.
- Construction Spending m/m is out at 10 AM EST. This is major.
- ISM Manufacturing Prices is out at 10 AM EST. This is not major.
Currencies
On Friday the Swiss Franc made it’s move at around 9:20 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 9:20 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 around 9:20 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
On Friday we said our bias was to the downside and unfortunately we were correct. The Dow dropped 115 points other indices lost ground as well. Today we aren’t with a correlated market and our bias is to the upside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
On Friday Preliminary GDP numbers were reported for the 1st calendar quarter that showed negative growth. The number came in at -0.7 versus -0.8 expected. Now one might suggest that the actual number was better than expected but the number is still negative and that’s not whats expected in a so-called “recovery.” This is the second quarter that we’ve seen this situation and Chicago PMI coming in at less than expected didn’t help matters much. Hence the Dow dropped into negative triple digit territory. The one bright spot to all this is the Fed will hard pressed to find a reason to justify a rate increase later this month. As we’ve said repeatedly we don’t think it will happen until the 4th calendar quarter at the earliest, but time will tell.
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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