Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:45 AM EST, here’s what we see:
US Dollar: Up at 99.945 the US Dollar is up 105 ticks and trading at 99.945.
Energies: January Crude is down at 41.40.
Financials: The Dec 30 year bond is down 2 ticks and trading at 157.05.
Indices: The Dec S&P 500 emini ES contract is up 5 ticks and trading at 2101.25.
Gold: The December gold contract is trading up at 1067.10. Gold is 33 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 fractionally and Crude is trading lower 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.
Asia traded mixed with half the exchanges trading higher and the other half lower.. As of this writing Europe is trading mainly higher with the exception of the German Dax and Paris exchanges which are trading fractionally lower.
Possible Challenges To Traders Today
- FOMC Member Lockhart Speaks at 8:10 AM EST. This is major.
- ADP Non-Farm Employment Change is out at 8:15 AM EST. This is major.
- Fed Chair Yellen Speaks at 8:30 AM EST. This is major.
- Revised Nonfarm Productivity q/q is out at 8:30 AM EST. This is not major.
- Revised Unit Labor Costs q/q is out at 8:30 AM EST. This is not major.
- Crude Oil Inventories are out at 10:30 AM EST This is major.
- Fed Chair Yellen Speaks at 12:25 PM EST. This is major.
- Beige Book is out at 2 PM EST. This is major.
- FOMC Member Williams Speaks at 3:40 PM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 8 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 8 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 8 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 the $10.00 that we usually see for currencies.
Charts Courtesy of Trend Following Trades built on a NinjaTrader platform
Bias
Yesterday we gave the markets an upside bias. The markets didn’t disappoint as the Dow gained 168 points and the other indices gained 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 marked the first trading day of December, 2015 and what a session it was as immediately from the opening bell the market charged higher. It was reported by TruCar that November car sales topped 44 Billion dollars and hit an all time high. That may be true of most brands with the exception of Volkswagen whose sale slipped in November. Unfortunately if the Fed decides to hike rates later this month it may very well be the last time in awhile that we see such numbers. Our take is that the American consumer will clamp down their spending if the Fed decides to foolishly raise rates but of course as in all things; only time will tell…
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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