Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:40 AM EST, here’s what we see:
US Dollar: Up at 97.450 the US Dollar is up 231 ticks and trading at 97.450.
Energies: April Crude is down at 38.03.
Financials: The June 30 year bond is up 27 ticks and trading at 163.22.
Indices: The Mar S&P 500 emini ES contract is up 18 ticks and trading at 1993.50.
Gold: The April gold contract is trading down at 1250.70. Gold is 67 ticks lower 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 up and Crude is trading lower which is 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 mainly lower with the exception of the Aussie and Nikkei exchanges which traded higher. As of this writing all of Europe is trading lower.
Possible Challenges To Traders Today
- Unemployment Claims are out at 8:30 AM EST. This is major.
- Nat Gas Storage is out at 10:30 AM EST. This is major.
- 30-y Bond Auction starts at 1 PM EST. This could affect afternoon trading.
- Federal Budget Balance is out at 2 PM EST.
Currencies
Yesterday the Swiss Franc made it’s move at around 8:45 AM EST with no real economic news to speak of. 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 8:45 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 8:45 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 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
Yesterday we gave the markets an upside bias as once again we were just following our rules of market correlation. The Dow gained 36 points and the other indices gained 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
So yesterday after Super Tuesday 2 Donald Trump was ready to pop the champagne cork as in his mind he is the Republican nominee. He could very well be right but to hear him brag on live television about his accomplishments was enough to turn anyone’s stomach. Hey Donald we weren’t born a millionaire so forgive us if we don’t measure up. Hillary’s playing it cool and close to the vest. It seems that next Tuesday we’ll have another Super Tuesday (Super Tuesday 3?) in which 5 or 6 states are up for grabs. From the market perspective all seemed calm and cool as the market followed rules of market correlation. Will we see the same today? Only time will tell.
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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