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 94.720 the US Dollar is up 102 ticks and trading at 94.720.
Energies: May Crude is down at 36.36.
Financials: The June 30 year bond is up 17 ticks and trading at 164.29.
Indices: The June S&P 500 emini ES contract is up 10 ticks and trading at 2067.50.
Gold: The June gold contract is trading down at 1219.20. Gold is 43 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 higher with the exception of the Nikkei and Hang Seng exchanges which traded higher. As of this writing Europe is trading mixed with half the exchanges higher and the other half lower.
Possible Challenges To Traders Today
- Factory Orders are out at 10 AM EST. This is major.
- Labor Market Conditions Index m/m is out at 10 AM EST. This is major.
Currencies
On Friday the Swiss Franc made it’s move at around 8:40 AM EST after the Non-Farm Payroll numbers came out. 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 8:40 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 8:40 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 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
On Friday we gave the markets a neutral bias as is our custom on Jobs Friday. The Dow gained 108 points and the other indices gained ground as well. Today we aren’t dealing with a correlated market and will maintain a neutral bias.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
This past Friday Non-Farm Payroll numbers came out that showed the Unemployment Rate increased to 5.0% after two consecutive months at 4.9%. The reason? We are told by the “experts” and “analysts” that the reason this has happened is because more people joined the workforce. Really? I might buy that argument if this were June and we had a boatload of college grads, but in March? Sorry, not buying it. BTW if this were the case then how does it go that the U6 rate increased from 9.7% to 9.8%? If what the “experts” were saying is true, the exact opposite would have occurred. Don’t believe it?
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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Gold holds on to modest gains around $2,320
Gold trades decisively higher on the day above $2,320 in the American session. Retreating US Treasury bond yields after weaker-than-expected US employment data and escalating geopolitical tensions help XAU/USD stretch higher.
Bitcoin price holds above $63K as MicroStrategy tops BTC ownership list
Bitcoin (BTC) price recorded a rather bold two days this past weekend in a surge that saw millions in positions liquidated. However, the week is off to a calm start with altcoins sucking liquidity from the BTC market.
Stagflation warning: Service economy contracts as prices rise
In another stagflation warning sign, the U.S. service sector contracted in April even as service prices rose. The Institute for Supply Management's non-manufacturing PMI dropped to 49.4 in April, dipping from 51.4 in March.