Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:30 AM EST, here’s what we see:
US Dollar: Down at 94.745 the US Dollar is down 208 ticks and trading at 94.745.
Energies: December Crude is up at 46.31.
Financials: The Dec 30 year bond is down 11 ticks and trading at 158.01.
Indices: The Dec S&P 500 emini ES contract is down 22 ticks and trading at 2022.00.
Gold: The December gold contract is trading up at 1173.80. Gold is 10 ticks higher than its close.
Initial Conclusion
This is a not a correlated market. The dollar is down- and crude is up+ 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 down and Crude is trading up which is 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.
Asia traded mixed with half the exchanges trading higher and the other half lower. As of this writing Europe is trading lower.
Possible Challenges To Traders Today
- Building Permits are out at 8:30 AM EST. This is major.
- Housing Starts are out at 8:30 AM EST. This is major.
- FOMC Member Dudley Speaks at 9 AM EST. This is major.
- FOMC Member Powell Speaks at 9:15 PM EST. This is major.
- Fed Chair Yellen Speaks at 11 AM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 9:30 AM EST before 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 9:30 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 9:30 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 NinjaTrader platform
Bias
Yesterday we said our bias was neutral as the indices didn’t show any direction on Friday morning. The Dow gained 15 points and the other indices gained ground as well. Today we aren’t dealing with a correlated market and our bias is neutral.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday we gave a neutral bias as the Bonds were down, crude was down as well as Gold. This being said what we should have seen yesterday morning was the indices flying high. We didn’t see that and hence the neutral bias which means the markets could go in any direction. And yesterday, it did. The NAHB (pronounced Naboo) came out and beat expectation but that wasn’t enough to send the markets higher, in fact they flip flopped between positive and negative territory all session long to finish 15 points higher. Today we have Building Permits and Housing Starts both of which are major reports and hopefully will lend direction to this market.
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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