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 95.490, the US Dollar is up 540 ticks and trading at 95.490.
Energies: August Crude is up at 58.43.
Financials: The Sept 30 year bond is up 3 ticks and trading at 151.00.
Indices: The Sept S&P 500 emini ES contract is up 27 ticks and trading at 2057.25.
Gold: The August gold contract is trading down at 1175.70 Gold is 33 ticks lower than its close.
Initial Conclusion
This is not a correlated market. The dollar is up+ and oil is up+ which is not normal and the 30 year bond is trading higher. 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 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.
All of Asia traded higher. As of this writing all of Europe is trading lower with the exception of the Milan exchange which is trading fractionally higher at this hour.
Possible Challenges To Traders Today
- S&P/CS Composite-20 HPI y/y is out at 9 AM EST. This is major.
- Chicago PMI is out at 9:45 AM EST. This is major.
- CB Consumer Confidence is out at 10 AM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 9:15 AM EST before Pending Home Sales was released. 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 9:15 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 9:15 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 to the downside as the USD and the Bonds were trading higher and this bode well for an upside day. The markets didn’t disappoint as the Dow dropped 351 points and the other indices lost 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 morning it was fairly clear as to what the direction the market would take as the bonds were 100 ticks higher and admittedly this is something we’ve not seen before. Apparently the news from Greece was driving all major global markets yesterday and just about every exchange worldwide traded lower. This is nothing more than market correlation in action as we stated in our Market Bias video yesterday “if you aren’t going short, then consider staying out of the market today as you may get whipsawed.” There are some traders who are biased to only go long. We on the other hand suggest to take what the market gives you (long or short) and trade accordingly.
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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