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 94.090 the US Dollar is up 133 ticks and trading at 94.090.
Energies: November Crude is down at 46.05.
Financials: The Dec 30 year bond is down 3 ticks and trading at 159.16.
Indices: The Dec S&P 500 emini ES contract is up 48 ticks and trading at 1996.00.
Gold: The December gold contract is trading up at 1185.40. Gold is 56 ticks higher than its close.
Initial Conclusion
This is a not a correlated market. The dollar is up+ and crude is down- which is 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 down which is correlated. Gold is trading up which is not 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 higher.
Possible Challenges To Traders Today
- CPI is out at 8:30 AM EST. This is major.
- Core CPI is out at 8:30 AM EST. This is major.
- Unemployment Claims is out at 8:30 AM EST. This is major.
- Empire State Manufacturing Index is out at 8:30 AM EST. This is major.
- Philly Fed Manufacturing Index is out at 10 AM EST. This is major.
- FOMC Member Dudley Speaks at 10:30 PM EST. This is major.
- Natural Gas Storage is out at 10:30 AM EST.
- Crude Oil Inventories is out at 11 AM EST.
Currencies
Yesterday the Swiss Franc made it’s move at around 8:30 AM EST immediately 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 8:30 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 8:30 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 Ninja Trader platform
Bias
Yesterday we said our bias was neutral as the futures didn’t give any sense of direction whatsoever. The Dow dropped 157 points and the other indices followed. Today we aren’t dealing with a correlated market, however our bias is to the upside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday we gave a neutral bias because the Bonds and December Gold were both trading higher and ordinarily this doesn’t bode well for an upside day. The index futures however were trading higher yesterday morning and didn’t give any sense of conviction; hence a neutral bias. A neutral bias means the markets could go in any direction. Retail Sales came out yesterday morning that showed a decrease in sales and therefore consumer spending. This isn’t showing what almost everyone believed regarding the economy in general. If the Fed was considering raising in October (later this month) then they should reconsider as raising rates won’t help retail sales or consumer spending in general.
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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