Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 5:30 AM EST, here’s what we see:
US Dollar: Up at 99.970 the US Dollar is up 380 ticks and trading at 99.970.
Energies: January Crude is down at 42.31.
Financials: The Dec 30 year bond is up 3 ticks and trading at 155.03.
Indices: The Dec S&P 500 emini ES contract is up 22 ticks and trading at 2090.25.
Gold: The December gold contract is trading down at 1072.80. Gold is 10 ticks lower than its close.
Initial Conclusion
This is a not a correlated market. The dollar is up+ and crude is down- which is 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 lower which is 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 lower with the exception of the Shanghai exchange which traded higher. All of Europe is trading higher with the exception of the Spanish IBEX which is fractionally lower.
Possible Challenges To Traders Today
- Durable Goods are out at 8:30 AM EST. This is major.
- Core Durable Goods is out at 8:30 AM EST. This is major.
- Core PCE Price Index m/m is out at 8:30 AM EST. This is major
- Personal Spending m/m is out at 8:30 AM EST. This is major.
- Personal Income m/m is out at 8:30 AM EST. This is major.
- Unemployment Claims are out at 8:30 AM EST. This is major.
- HPI m/m is out at 9 AM EST. This is major.
- Flash Services PMI is out at 9:45 AM EST. This is major.
- New Home Sales is out at 10 AM EST. This is major.
- Revised UoM Consumer Sentiment is out at 10 AM EST. This is not major.
- Revised UoM Inflation Expectations is out at 10 AM EST. This is not major.
- Crude Oil Inventories are out at 10:30 AM EST. This could move the crude markets.
- Natural Gas Storage is out at 12 PM EST. This could move the Nat Gas market.
Currencies
Yesterday the Swiss Franc made it’s move at around 9:15 AM EST the 8:30 news came out. 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 9:15 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 low at around 9:15 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 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 downside as Crude, Financials (Bonds) and Gold were all trading higher yesterday morning. The Dow gained 19 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
So we come to that time of year when we all give thanks to something that we have. As traders the market provides us with opportunities each and every trading day. There is no limit to opportunities that we’re exposed to. We are unique in the respect that we have the freedom to capitalize on those opportunities each and every day. So in that respect we have much to be grateful for. Yesterday teh news reported was a bit more mixed than we’re used to seeing. It appears as though GDP ticked higher (thanks to lower gas prices) and Home prices registered a gain but Richmond Manufacturing and Consumer Confidence did not fare so well as they both dropped below expectation. I just hope the Fed keeps this in mind when they meet in December. Today we have a virtual tsunami of eco news as there are 13 due to the Thanksgiving holiday. There will be an abbreviated session on Friday and the next edition of Market Tea Leaves will be Monday, November 30th. Happy Thanksgiving!!!!!
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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