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 99.235 the US Dollar is up 77 ticks and trading at 99.235.
Energies: December Crude is up at 43.06.
Financials: The Dec 30 year bond is up 4 ticks and trading at 152.05.
Indices: The Dec S&P 500 emini ES contract is up 9 ticks and trading at 2071.25.
Gold: The December gold contract is trading up at 1087.40. Gold is 25 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 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 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 higher with the exception of Shanghai and Singapore. As of this writing all of Europe is trading lower.
Possible Challenges To Traders Today
- Unemployment Claims is out at 8:30 AM EST – This is major.
- Chair Yellen Speaks at 9:30 AM EST. This is major.
- JOLTS Job Openings is out at 10 AM EST. This is major.
- FOMC Member Evans Speaks at 10:15 AM EST. This is major.
- Crude Oil Inventories is out at 11 AM EST. This could move the crude markets.
- FOMC Member Dudley Speaks at 12:15 PM EST. This is major.
- 30-y Bond Auction starts at 1 PM EST.
- Federal Budget Balance is out at 2 PM EST. This could affect PM trading.
Currencies
Yesterday the Swiss Franc made it’s move at around 10 AM EST with no real economic news in sight. 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 10 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 10 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 about 15 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 the $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 USD, Bonds and Crude were all trading lower. This usually represents an upside bias. However the markets had other ideas as the Dow dropped 56 points and the other indices lost ground as well. Today we aren’t dealing with a correlated market and our bias is neutral. A neutral bias means the markets could go in any direction.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday we didn’t have much if any economic news to speak of and certainly nothing that could be described as market movers. It was a bank holiday (Veterans Day) and a light trading day to boot. That will change today as we have about 8 economic reports and all are major…..
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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