Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:20 AM EST, here’s what we see:
US Dollar: Down at 96.700 the US Dollar is down 646 ticks and trading at 96.700.
Energies: September Crude is down at 48.03.
Financials: The Sept 30 year bond is up 17 ticks and trading at 155.04. Indices: The Sept S&P 500 emini ES contract is down 18 ticks and trading at 2073.00.
Gold: The August gold contract is trading up at 1103.70 Gold is 182 ticks higher than its close.
Initial Conclusion
This is not a correlated market. The dollar is down- and oil is down- which is not normal but 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 down and Crude is trading down which is not correlated. Gold is trading up which is 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 lower. As of this writing all of Europe is trading lower.
Possible Challenges To Traders Today
- Core Durable Goods Orders m/m is out at 8:30 AM EST. This is major.
- Durable Goods Orders m/m is out at 10 AM EST. This is major.
Currencies
On Friday the Swiss Franc made it’s move around 10:20 AM EST after the New Home Sales numbers came out. 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 10:20 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 10:20 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 about 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 neutral as (once again) we didn’t see follow thru on the indices. The Dow closed down 163 points and the other indices lost ground as well. Today we aren’t dealing with a correlated market and our bias is to the downside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
On Friday our bias was neutral and for those of you who are new to Market Tea Leaves a neutral bias means the markets could go in any direction. The Dow dropped 163 points and the other indices lost ground as well. This entire past week has been dismal for the markets as only last Monday, July 20th saw a gain for the markets. Now some will say that the New Home Sales numbers reported on Friday is to blame as that number came in at 482,000 versus 543,000 expected. Whereas there is some measure of truth to this our take is a bit different. We think that with all the hoopla and fear the Fed is putting into the market concerning interest rates, the markets will be in this mode until a clear, definitive direction is given.
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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Bitcoin (BTC) price recorded a rather bold two days this past weekend in a surge that saw millions in positions liquidated. However, the week is off to a calm start with altcoins sucking liquidity from the BTC market.
RBA expected to leave key interest rate on hold as inflation lingers
Interest rate in Australia will likely stay unchanged at 4.35%. Reserve Bank of Australia Governor Michele Bullock to keep her options open. Australian Dollar bullish case to be supported by a hawkish RBA.