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 96.395 the US Dollar is up 69 ticks and trading at 96.395.
Energies: October Crude is up at 45.42.
Financials: The Dec 30 year bond is down 6 ticks and trading at 157.20.
Indices: The Dec S&P 500 emini ES contract is up 10 ticks and trading at 1919.25.
Gold: The October gold contract is trading down at 1109.20. Gold is 50 ticks lower than its close.
Initial Conclusion
This is not a correlated market. The dollar is up+ and crude is up+ which is not normal but 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 Singapore exchange which traded fractionally lower. As of this writing of Europe is trading higher with the exception of teh Spanish IBEX exchange which is down fractionally.
Possible Challenges To Traders Today
- Average Hourly Earnings m/m is out at 8:30 AM EST. This is major.
- Non-Farm Employment Change is out at 8:30 AM EST. This is major.
- Unemployment Rate is out at 8:30 AM EST. This is major.
- Factory Orders m/m is out at 10 AM EST. This is major.
- Construction Spending m/m is out at 10AM EST. This is major.
- FOMC Member Fischer Speaks at 1:30 PM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 9:15 AM EST all the 8:30 news 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 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 upside as the Bonds and Gold were both trading lower. The markets however had other ideas as the Dow fell by 13 points. Today being Jobs Friday we will maintain a neutral bias.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday we said the markets would advance and we used our rules of Market Correlation to come to that conclusion. However the markets had other ideas as the Dow fell by 13 points. It didn’t help that none of the economic news reported yesterday met expectation. Challenger Jobs Cuts came in far greater than expected, Unemployment Claims came in higher and ISM Manufacturing PMI didn’t exceed last month’s number. If the Fed is considering raising rates later this month they should consider these reports as they aren’t stellar and if the Fed is looking to throw a monkey wrench into this economy raising rates is a good way to do it. Today we have the long awaited Non-Farm Payrolls numbers out at 8:30 and hopefully this can provide direction for the market in the month of October.
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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