Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:30 AM EST, here’s what we see:
US Dollar: Up at 97.745 the US Dollar is up 260 ticks and trading at 97.745.
Energies: April Crude is down at 30.98.
Financials: The Mar 30 year bond is up 26 ticks and trading at 167.18.
Indices: The Mar S&P 500 emini ES contract is down 17 ticks and trading at 1911.75.
Gold: The April gold contract is trading up at 1227.10. Gold is 45 ticks higher than its close.
All of Asia traded lower with the exception of Shanghai which traded higher. As of this writing all of Europe is trading lower.
- New Home Sales is out at 10 AM EST. This is major.
- Crude Oil Inventories is out at 10:30 AM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 8 AM EST with no real economic news in sight. The 1st major economic news hit an hour later at 9 AM EST with the S&P Home Price Index. 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 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 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
Could this change? Of Course. Remember anything can happen in a volatile market.
Just so you understand, Market Correlation is Market Direction. It attempts to determine the market direction for that day and it does so by using a unique set of tools.
As readers are probably aware I don’t trade equities. While we’re on this discussion, let’s define what is meant by a good earnings report. A company must exceed their prior quarter’s earnings per share and must provide excellent forward guidance. Any falloff between earning per share or forward guidance will not bode well for the company’s shares. This is one of the reasons I don’t trade equities but prefer futures. There is no earnings reports with futures and we don’t have to be concerned about lawsuits, scandals, malfeasance, etc.
Anytime the market isn’t correlated it’s giving you a clue that something isn’t right and you should proceed with caution. Today our bias is to the downside. Could this change? Of course. In a volatile market anything can happen. We’ll have to monitor and see.
As I write this the crude markets are lower and the futures are trading lower. This is not normal. Crude and the markets are now reverse correlated such that when the markets are rising, crude drops and vice-versa. Yesterday April Crude dropped to a low of $31.63 a barrel. It would appear at the present time that crude has support at $31.60 a barrel and resistance at $33.48. This could change. We’ll have to monitor and see. Remember that crude is the only commodity that is reflected immediately at the gas pump. On Friday, December 4th OPEC reiterated their stance not to cut production. OPEC appears to be adamant about keeping production where it is as they believe that oil will rebound. What they haven’t figured out yet is that the more countries like Canada and the US produce their own crude (by whatever means) the more crude prices will fall.
If trading crude today consider doing so after 10:30 AM EST when the inventory numbers come out and the markets gives us better direction.
In tandem with the Non-Farm Payrolls that came out on Friday the 5th, a new item appeared that stated No Recession in the US according to CEO’s.
Let me just state this. For years we’ve been warning our followers that the markets are manipulated and being manipulated by the Smart Money. The Smart Money could be either the institutionals or the CEO’s of large companies. So why would a CEO of any major company tell you that a recession is coming? So you can turn around and sell their company stock? Would that be in their best interest? Think about that if you read the article….
As of this writing 4:30 AM EST, here’s what we see:
US Dollar: Up at 97.745 the US Dollar is up 260 ticks and trading at 97.745.
Energies: April Crude is down at 30.98.
Financials: The Mar 30 year bond is up 26 ticks and trading at 167.18.
Indices: The Mar S&P 500 emini ES contract is down 17 ticks and trading at 1911.75.
Gold: The April gold contract is trading up at 1227.10. Gold is 45 ticks higher than its close.
Initial Conclusion
This is not a correlated market. The dollar is up+ and crude is down- 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 lower which is not 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.All of Asia traded lower with the exception of Shanghai which traded higher. As of this writing all of Europe is trading lower.
Possible Challenges To Traders Today
- Flash Services PMI is out at 9:45 AM EST. This is major.- New Home Sales is out at 10 AM EST. This is major.
- Crude Oil Inventories is out at 10:30 AM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 8 AM EST with no real economic news in sight. The 1st major economic news hit an hour later at 9 AM EST with the S&P Home Price Index. 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 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 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 a downside bias as the USD, Bonds and Gold were all trading higher and this is not a good bullish signal, hence our bias was to the downside. The Dow dropped 189 points and the other indices dropped 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
Yesterday once again and just by following our rules for Market Correlation we knew that the markets would fall and they did! The USD, Bonds and Gold were all trading higher and this typically is not a bullish signal, hence our bias was to the downside. It seems as though we’re entering a pattern whereby the markets go up one or two days and then fall. Is this now the norm for the future? Thus far in 2016 it appears that way but of course, time will tell how it all plays out. Today we have New Home Sales out at 10 AM EST and this is always a market mover but we’ll have to see how the market reacts to the news….Just so you understand, Market Correlation is Market Direction. It attempts to determine the market direction for that day and it does so by using a unique set of tools.
As readers are probably aware I don’t trade equities. While we’re on this discussion, let’s define what is meant by a good earnings report. A company must exceed their prior quarter’s earnings per share and must provide excellent forward guidance. Any falloff between earning per share or forward guidance will not bode well for the company’s shares. This is one of the reasons I don’t trade equities but prefer futures. There is no earnings reports with futures and we don’t have to be concerned about lawsuits, scandals, malfeasance, etc.
Anytime the market isn’t correlated it’s giving you a clue that something isn’t right and you should proceed with caution. Today our bias is to the downside. Could this change? Of course. In a volatile market anything can happen. We’ll have to monitor and see.
As I write this the crude markets are lower and the futures are trading lower. This is not normal. Crude and the markets are now reverse correlated such that when the markets are rising, crude drops and vice-versa. Yesterday April Crude dropped to a low of $31.63 a barrel. It would appear at the present time that crude has support at $31.60 a barrel and resistance at $33.48. This could change. We’ll have to monitor and see. Remember that crude is the only commodity that is reflected immediately at the gas pump. On Friday, December 4th OPEC reiterated their stance not to cut production. OPEC appears to be adamant about keeping production where it is as they believe that oil will rebound. What they haven’t figured out yet is that the more countries like Canada and the US produce their own crude (by whatever means) the more crude prices will fall.
If trading crude today consider doing so after 10:30 AM EST when the inventory numbers come out and the markets gives us better direction.
Future Challenges
Given that it is now 2016 and an election year, the focus will be on who gets nominated for each party and of course who wins the election. The emphasis will be more on the GOP side as they have far more candidates than do the Democrats.In tandem with the Non-Farm Payrolls that came out on Friday the 5th, a new item appeared that stated No Recession in the US according to CEO’s.
Let me just state this. For years we’ve been warning our followers that the markets are manipulated and being manipulated by the Smart Money. The Smart Money could be either the institutionals or the CEO’s of large companies. So why would a CEO of any major company tell you that a recession is coming? So you can turn around and sell their company stock? Would that be in their best interest? Think about that if you read the article….
Crude Oil Is Trading Lower
Crude oil is trading lower and the markets are declining. This is not normal. Crude typically makes 3 major moves (long or short) during the course of any trading day: around 9 AM EST, 11 AM EST and 2 PM EST when the crude market closes. If crude makes major moves around those time frames, then this would suggest normal trending, if not it would suggest that something is not quite right. As always watch and monitor your order flow as anything can happen in this market. This is why monitoring order flow in today’s market is crucial. We as traders are faced with numerous challenges that we didn’t have a few short years ago. High Frequency Trading is one of them. I’m not an advocate of scalping however in a market as volatile as this scalping is an alternative to trend trading.
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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