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 98.275 the US Dollar is up 56 ticks and trading at 98.275.
Energies: April Crude is up at 33.98.
Financials: The Mar 30 year bond is down 10 ticks and trading at 165.18.
Indices: The Mar S&P 500 emini ES contract is up 42 ticks and trading at 1940.00.
Gold: The April gold contract is trading up at 1242.20. Gold is 78 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 but the 30 year bond is trading lower. 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 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 higher with some exchanges in positive triple digit territory. As of this writing all of Europe is trading higher.
Possible Challenges To Traders Today
- Final Manufacturing PMI is out at 9:45 AM EST. This is major.
- ISM Manufacturing PMI is out at 10 AM EST. This is major.
- Construction Spending m/m is out at 10 AM EST. This is major.
- ISM Manufacturing Prices is out at 10 AM EST. This is major.
- Total Vehicle Sales – All Day
Currencies
Yesterday the Swiss Franc made it’s move at around 11 AM EST long after the economic news was released. 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 11 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 11 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 just about 20 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 Bonds and Gold were trading up and usually this is a good prescription for a downside bias. The markets however were all over the map yesterday seeking direction. First down, then up, then sideways. The Dow dropped 123 points yesterday 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
Well Sunday we finally witnessed Leo DiCaprio receive his well earned Oscar. It was about time as after all he was only nominated six times and didn’t win so I guess this time made it all worthwhile. Yesterday the markets were all over the map with no clue as to direction. First down, then up, then sideways. The economic news reported yesterday wasn’t too encouraging either as Pending Home Sales showed no gain whatsoever and in fact showed a loss. Today we have Construction Spending and Total Vehicle Sales which should give us a clue as to trend and market direction….
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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