Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 5:10 AM EST, here’s what we see:
US Dollar: Up at 96.605 the US Dollar is up 118 ticks and trading at 96.605.
Energies: March Crude is up at 32.19.
Financials: The Mar 30 year bond is up 10 ticks and trading at 163.02.
Indices: The Mar S&P 500 emini ES contract is up 19 ticks and trading at 1912.50.
Gold: The Feb gold contract is trading up at 1157.80. Gold is 3 ticks higher than its close.
Initial Conclusion
This is 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 higher which is not correlated. Gold is trading up which is not 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.
Asia traded mainly higher with the exception of the Japanese Nikkei and Shanghai exchanges which traded lower. As this writing all of Europe is trading higher.
Possible Challenges To Traders Today
- Average Hourly Earnings m/m is out at 8:30 AM EST. This is major.
- Non-Farm Employment Change is out at 8:30 AM EST. This is major.
- Unemployment Rate is out at 8:30 AM EST. This is major.
- Trade Balance is out at 8:30 AM EST. This is major.
- Consumer Credit m/m is out at 3 PM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 10 AM EST after the economic news was reported. 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 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 an upside bias as both the USD and Bonds were both trading lower yesterday morning and this usually bodes well for an upside day. The Doe gained 80 points and the other indices gained ground as well. Today given that it is Jobs Friday, we’ll maintain a neutral bias.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday the markets flip flopped between positive and negative territory all session long and it was hard to determine who was in the lead: the Bulls or the Bears. Today we have Non-Farm Payrolls aka Jobs Friday and as is our custom will maintain a neutral bias. Neutral means the markets could go in any direction today. Why a neutral bias on Jobs Friday? Because the markets have never shown any sense of normalcy on this day so some traders will look at the glass half empty and the other half full.
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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Editors’ Picks
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GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Gold struggles to hold above $2,350 following US inflation
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Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
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