Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 5:40 AM EST, here’s what we see:
US Dollar: Down at 98.980 the US Dollar is down 340 ticks and trading at 98.980.
Energies: January Crude is up at 36.39
Financials: The Mar 30 year bond is up 12 ticks and trading at 156.09.
Indices: The Mar S&P 500 emini ES contract is down 24 ticks and trading at 2018.75.
Gold: The Feb gold contract is trading up at 1054.80. Gold is 52 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 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 down and Crude is trading higher 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.
All of Asia traded lower. As of this writing Europe is trading lower.
Possible Challenges To Traders Today
- Flash Services PMI is out at 9:45 AM EST. This is not major.
- FOMC Member Lacker Speaks at 1 PM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 10 AM EST after the 8:30 news numbers came out. 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 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 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 Ninja Trader platform
Bias
Yesterday we maintained our neutral as the markets couldn’t seem to make its mind in terms of direction. The Dow dropped 253 points and the other indices lost ground as well. Today we aren’t dealing with a correlated market and our bias is to the downside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Well it was the day after the FOMC and it appears as though everyone suddenly woke up. With the exception of the Unemployment Claims, the economic news wasn’t too stellar yesterday and the Dow moved from positive territory in the morning to negative by the afternoon. Yesterday also reflected options expiration for certain instruments so that may have led to some volatility. Today we have an FOMC Member speaking at 1 PM this afternoon and of course that’s always major. It seems the markets died down after drinking the DC Kool Aid on Wednesday. You have to ask yourself who has the most to gain from these actions and the answer is the Smart Money. At the last FOMC meeting when the Fed didn’t hike, that day and the days after were a disaster as the markets fell and all the so called analysts berated the Fed for not hiking.
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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