Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:20 AM EST, here’s what we see:
US Dollar: Down at 96.965 the US Dollar is down 89 ticks and trading at 96.965.
Energies: March Crude is up at 31.01.
Financials: The Mar 30 year bond is up 9 ticks and trading at 163.17.
Indices: The Mar S&P 500 emini ES contract is down 26 ticks and trading at 1868.75.
Gold: The Feb gold contract is trading up at 1169.80. Gold is 121 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 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.
Asia traded mixed with half the exchanges trading higher and the other half lower. As this writing Europe is trading mainly lower with the exception of the Milan exchange which is trading higher.
Possible Challenges To Traders Today
- Mortgage Delinquencies. This is not major.
- Labor Market Conditions Index m/m is out at 10 AM EST. This is not major.
- Lack of major economic news.
Currencies
Yesterday the Swiss Franc made it’s move at around 8:35 AM EST after the all important Jobs Numbers 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 8:35 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 8:35 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 Ninja Trader platform
Bias
On Friday we gave the markets a neutral bias as is usual and customary for a Jobs Friday. The Dow dropped 212 points and the other indices dropped as well. Today we aren’t dealing with a correlated market and will maintain a neutral bias.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Well another Jobs Friday has come and gone and haven’t you heard? The Unemployment Rate dropped to 4.9% exceeding the 5% threshold for a recovery. So why then did the markets drop on Friday? Could it be because the number of jobs created came in at 151,000 versus 189,000 expected and did not meet expectation? Or maybe it was because the U6 Rate (long term unemployed) didn’t drop and is still at 9.9% for the last 3 months. Don’t bother to state that these people didn’t want a job. No one who’s unemployed that long doesn’t want to work. Don’t believe it?
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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