Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:20 AM EST, here’s what we see:
US Dollar: Up at 94.605 the US Dollar is up 27 ticks and trading at 94.605.
Energies: May Crude is down at 38.00.
Financials: The June 30 year bond is down 6 ticks and trading at 164.08.
Indices: The June S&P 500 emini ES contract is down 30 ticks and trading at 2044.00.
Gold: The April gold contract is trading down at 1232.80. Gold is 14 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 lower with the exception of the Shanghai exchange which traded up fractionally.. As of this writing all of Europe is trading lower.
Possible Challenges To Traders Today
- Average Hourly Earnings m/m is out at 8:30 AM EST. This is major.
- Non-Farm Employment Change is out at 8:30 AM EST. This is major.
- Unemployment Rate is out at 8:30 AM EST. This is major.
- 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.
- Revised UoM Consumer Sentiment is out at 10 AM EST. This is not major.
- Revised UoM Inflation Expectations is out at 10 AM EST. This is not 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 not major.
- Total Vehicle Sales – All Day. Major
- FOMC Member Mester Speaks at 12 PM. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 8:35 AM EST after the Unemployment Claims numbers came out. 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 8:35 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 high at around 8:35 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 a downside bias as the USD and the Bonds were trading higher. The Dow dropped 32 points, the S&P fell by 4 and the Nasdaq gained 1. Given that today is Jobs Friday we will maintain a neutral bias.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday morning the USD, Bonds and Gold were all trading higher and as per our rules of Market Correlation we gave a downside bias and it appears we were correct in doing so as the Dow and S&P dropped. The Nasdaq only gained 1 point. Today given that it is Jobs Friday we will maintain a neutral as is our custom on this day. In addition we have about 10 economic reports, most of which are major. Why do we maintain a neutral bias on this day? Because the markets have never shown any sense of normalcy on this day.
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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