Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:10 AM EST, here’s what we see:
US Dollar: Up at 95.870 the US Dollar is up 26 ticks and trading at 95.870.
Energies: October Crude is down at 46.19.
Financials: The Sept 30 year bond is up 12 ticks and trading at 155.28.
Indices: The Sept S&P 500 emini ES contract is up 27 ticks and trading at 1953.75.
Gold: The October gold contract is trading down at 1131.90. Gold is 12 ticks lower than its close.
Initial Conclusion
This is not a correlated market. The dollar is up+ and oil is down- which is 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 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 higher with the exception of the Chinese exchanges. Please note the China exchanges are closed for a bank holiday. As of this writing all of Europe is trading higher.
Possible Challenges To Traders Today
- Challenger Job Cuts y/y is out at 7:30 AM EST. This is major.
- Trade Balance is out at 8:30 AM EST. This is major.
- Unemployment Claims is out at 8:30 AM EST. This is major.
- Final Services PMI is out at 9:45 AM EST. This is not major.
- Natural Gas is out at 10:30 AM EST. This could move the Nat Gas market.
- ISM Non-Manufacturing PMI is out at 10 AM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 9:45 AM EST just before Factory Orders 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 9:45 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 9:45 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 neutral as the USD, Bonds and Gold were all trading higher. Ordinarily that’s not a good sign for an upside day but the market had other ideas as the Dow rose 293 points and the other indices rose as well. Today we aren’t dealing with a correlated market and our bias is neutral. Subscribers: kindly review our market bias video for a detailed explanation on how we came up with this call.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
There’s an old saying “perception becomes reality”. In other words if I perceive it to be true then it must be. Yesterday’s activity seemed to sum that up nicely. Yesterday we said our bias was neutral which means the markets could go in any direction. We came to this conclusion because we saw the USD, Gold, Bonds all rise and yet the indices rose as well which would lead us to believe that the markets had no sense of direction. It would seem as though yesterday’s action was a dead cat bounce as regardless of economic news reported the market was determined to rise and it did. The economic news reported did not meet expectation and yet the markets rose. We’re told that the Fed Beige Book had something to do with it but the Beige Book showed robust growth in certain sectors which isn’t a good sign for a market concerned with interest rate hikes. Our take? The Smart Money wanted to market to rise and was so determined that regardless of news reported, it was going to rise.
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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