Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:20 AM EST, here’s what we see:
US Dollar: Up at 98.185 the US Dollar is up 161 ticks and trading at 98.185.
Energies: September Crude is up at 46.10.
Financials: The Sept 30 year bond is down 14 ticks and trading at 156.14.
Indices: The Sept S&P 500 emini ES contract is up 20 ticks and trading at 2088.00.
Gold: The August gold contract is trading down at 1084.30 Gold is 60 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 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 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.
Asia traded mainly higher with the exception of the Aussie and Shanghai exchanges which traded lower. As of this writing all of Europe is trading higher.
Possible Challenges To Traders Today
- ADP Non-Farm Employment Change is out at 8:15 AM EST. This is major.
- Trade Balance is out at 8:30 AM EST. This is major.
- Final Services PMI is out at 9:45 AM EST. This is not major.
- ISM Non-Manufacturing PMI is out at 10 AM EST. This is major.
- Crude Oil Inventories are out at 10:30 AM EST. This could move the crude market.
Currencies
Yesterday the Swiss Franc made it’s move around 10 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 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 low at around 10 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 about 20 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 to the upside as both the USD and the Bonds were trading lower and this usually bodes well for an upside day. The market however had other ideas as the Dow dropped 47 points and the other indices lost ground as well. Today we aren’t dealing 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
Yesterday morning we felt the market was bound for a rebound as both the USD and the Bonds were trading lower and usually this bodes well for an upside. Some folks call this phenomena “Turnaround Tuesday” but unfortunately there was no turnaround yesterday as all the indices lost ground. Factory Orders came in and met expectation but this wasn’t good enough as the market wants to see expectation being exceeded at each report interval. This is the summertime and as such very difficult to trade. We are dealing with low volumes and later on in the season I’m certain we’ll see the return of the interns. The interns are the ones who trade in lieu of the more experienced traders who are out on vacation. Unfortunately the interns can’t decipher the markets as they don’t have the experience yet. If the markets appear to be headed south they sell as they can’t tell a head fake from a true trend. Today we have more economic news on the docket so perhaps we’ll see a rebound….
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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