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 95.270 the US Dollar is up 150 ticks and trading at 95.270.
Energies: May Crude is down at 40.46.
Financials: The June 30 year bond is down 4 ticks and trading at 163.03.
Indices: The June S&P 500 emini ES contract is down 15 ticks and trading at 2033.75.
Gold: The April gold contract is trading down at 1243.10. Gold is 112 ticks lower than its close.
Initial Conclusion
This is not a correlated market. The dollar is up+ and crude is down- which is 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 down and Crude is trading lower which is not 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 mixed with half the exchanges trading higher and the other half lower. As of this writing Europe is trading mainly lower with the exception of the Milan exchange which is trading fractionally higher.
Possible Challenges To Traders Today
- Existing Home Sales is out at 10 AM EST. This is major.
- Lack of major economic news.
Currencies
On Friday the Swiss Franc made it’s move at around 9:30 AM EST before the economic news was reported. 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 9:30 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 9:30 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 ticks plus 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.
Please note that the front months are now June, 2016.
Charts Courtesy of Trend Following Trades built on a Ninja Trader platform
Bias
On Friday we gave a downside bias as both the USD and the Bonds were trading higher and ordinarily this represents a downside bias. The markets however had other ideas as the Dow closed up by 121 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
On Friday we gave the markets a downside bias as both the USD and the Bonds were trading higher and usually this represents a downside day. The markets however had other ideas as right from the opening bell and for the remainder of the session, the markets traded higher. It didn’t matter that the UOM consumer sentiment number didn’t meet expectation as when the markets want to trade higher, it shall. So what caused this? Our take is the Smart Money wanted the markets to trade higher and therefore it did. Today we only have Existing Home Sales out at 10 AM EST but we don’t think this will be enough to drive the markets; so it’ll be up to good old fundamentals.
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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