Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:30 AM EST, here’s what we see:
US Dollar: Up at 95.140 the US Dollar is up 72 ticks and trading at 95.140.
Energies: December Crude is up at 45.57.
Financials: The Dec 30 year bond is down 3 ticks and trading at 158.10.
Indices: The Dec S&P 500 emini ES contract is up 22 ticks and trading at 2014.00.
Gold: The December gold contract is trading up at 1167.30. Gold is 2 ticks higher than its close.
Initial Conclusion
This is a 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 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.
Asia traded mixed with half the exchanges trading higher and the other half lower. As of this writing the same holds true for Europe.
Possible Challenges To Traders Today
- Unemployment Claims are out at 8:30 AM EST. This is major.
- HPI is out at 9 AM EST. This is major.
- Existing Home Sales are out at 10 AM EST. This is major.
- CB Leading Index m/m is out at 10 AM EST. This is major.
- Nat Gas Storage is out at 10:30 AM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 10:15 AM EST with no economic news in sight. 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 10:15 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 10:15 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 Ninja Trader platform
Bias
Yesterday we said our bias was to the upside as the USD and crude were both trading lower. The Dow dropped 48 points and the other indices lost 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 no real economic news to speak of and sometimes that’s a good thing. We gave the markets an upside bias as both the USD and crude were trading lower yesterday morning and ordinarily that’s positive for the markets. We were abit taken by surprise when it was announced that Joe Biden would be speaking around 12 noon Eastern. Joe announced that he would not be seeking the Presidency in 2016 and gave no endorsement to any candidate. We expected that this might be perceived as positive news but no such luck. The markets meandered in and out of positive territory all session long, with no real conviction or trend. Given that today we have real economic news on the docket we may yet see a true sense of direction.
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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