Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:45 AM EST, here’s what we see:
US Dollar: Down at 98.330 the US Dollar is down 24 ticks and trading at 98.330.
Energies: February Crude is up at 36.74.
Financials: The Mar 30 year bond is up 4 ticks and trading at 153.12.
Indices: The Mar S&P 500 emini ES contract is up 6 ticks and trading at 2056.00.
Gold: The Feb gold contract is trading up at 1061.00. Gold is 12 ticks higher than its close.
Initial Conclusion
This is not a correlated market. The dollar is down- and crude is up+ which is normal but 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 higher which is not 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 mixed with half the exchanges trading higher and the other half lower. As of this writing Europe is trading mainly lower.
Possible Challenges To Traders Today
- Unemployment Claims are out at 8:30 AM EST. This is major.
- Chicago PMI is out at 9:45 AM EST. This is major.
- Natural Gas Storage is out at 10:30 AM EST. This could move the Nat Gas market.
Currencies
Yesterday the Swiss Franc made it’s move at around 8:50 AM EST prior to any economic news being reported. 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 8:50 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 8:50 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 about 20 plus ticks per contract 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 a downside bias as both the USD and the Bonds were trading higher yesterday morning. The Dow dropped 117 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 gave the markets a downside bias as both the USD and the Bonds were pointed lower yesterday morning and typically this bodes well for a downside day. Now as a subscriber to this newsletter, you'd have know that at 5 AM EST and could have capitalized on market direction. Additionally as a subscriber you would have received our in-depth Market Bias video that would have shown you how and why we came to that conclusion. Today is New Years Eve and we’ll conclude the year with more economic news but unlike last week’s Christmas Eve today will be a full day session for the markets. We may think that it’s short sighted to be open a full session but we don’t make those rules. Bottom line, most traders will be heading for the exits before lunchtime…..
On another note, we wish all of you a very Happy New Year!!!
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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