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 94.800 the US Dollar is up 163 ticks and trading at 94.800.
Energies: May Crude is up at 36.91.
Financials: The June 30 year bond is down 10 ticks and trading at 165.29.
Indices: The June S&P 500 emini ES contract is up 18 ticks and trading at 2043.25.
Gold: The June gold contract is trading down at 1226.90. Gold is 27 ticks lower than its close.
Initial Conclusion
This is not a correlated market. The dollar is up+ and crude is up+ which is not normal and 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 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 lower and the other half higher. As of this writing Europe is trading mainly higher with the exception of the German Dax which is trading lower.
Possible Challenges To Traders Today
- Crude Oil Inventories is out at 10:30 AM EST. This is major.
- FOMC Member Mester Speaks at 12:20 PM EST. This is major.
- FOMC Meeting Minutes is out at 2 PM EST. This is major.
- FOMC Member Bullard Speaks at 6:30 PM EST. This is major.
Currencies
Yesterday the Swiss Franc made it’s move at around 10 AM EST at around the same time that the eco news 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 10 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 10 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 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
Yesterday we gave the markets a downside bias as the USD, Bonds and Gold were all trading higher yesterday morning and that doesn’t bode well for an upside day. The Dow dropped 134 points and the other indices lost ground as well. Today we aren’t dealing with a correlated market however our bias is to the upside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Most of the economic news reported yesterday did not meet expectation. Trade Balance, JOLTS Job Openings and Economic Optimism didn’t quite cut it. Of course the market fell on this but we advised our followers at 5 AM EST that this could happen and unfortunately it did. Today we have the FOMC Meeting Minutes which will serve to provide us with insight as to what the Fed’s thinking.
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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