Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:20 AM EST, here’s what we see:
US Dollar: Down at 94.580 the US Dollar is down 221 ticks and trading at 94.580.
Energies: June Crude is up at 42.92.
Financials: The June 30 year bond is up 6 ticks and trading at 162.04.
Indices: The June S&P 500 emini ES contract is up 28 ticks and trading at 2090.25.
Gold: The June gold contract is trading down at 1235.90. Gold is 43 ticks lower than its close.
Initial Conclusion
This is not a correlated market. The dollar is down- and crude is up+ which is normal but 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 higher which is not correlated. Gold is trading down which is not correlated with the US dollar trading down. 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 all of Europe is trading higher.
Possible Challenges To Traders Today
– Core Durable Goods Orders is out at 8:30 AM EST. This is major.
– Durable Goods is out at 8:30 AM EST. This is major.
– S&P/CS Composite-20 HPI y/y is out at 9 AM EST. This is major.
– Flash Services PMI is out at 9:45 AM EST. This is major.
– CB Consumer Confidence is out at 10 AM EST. This is major.
– Richmond Manufacturing Index is out at 10 AM EST. This is major.
Gold
We’ve elected to switch gears a bit and show correlation between Gold and The YM futures contract. The YM contract is the DJIA and the purpose is to show reverse correlation between the two instruments. Remember it’s liken to a seesaw, when up goes up the other should go down and vice versa.
Yesterday Gold made it’s move at around 9:15 AM EST prior to the New Home Sales numbers. The YM hit a high at around that time and Gold hit a low. If you look at the charts below the YM gave a signal at around 9:15 AM EST, while Gold 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 YM hit a high at around 9:15 AM EST and Gold hit a low. These charts represent the latest version of Trend Following Trades and I’ve changed the timeframe to a 15 minute chart to display better. This represented a long opportunity on Gold, as a trader you could have netted about 50 plus ticks per contract on this trade. Each tick is worth $10. We added a Donchian Channel to the charts to show the signals more clearly.
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 Bonds were both trading higher yesterday morning and usually this signals a downside day. The Dow dropped 27 points and the other indices lost ground as well. Today we aren’t dealing with a correlated market however our bias is to he upside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday New Home Sales came out at 10 AM that did not meet expectation. The actual number came in at 511,000 versus 521,000 expected. The markets followed this with a drop which makes perfect sense. Today we have Super Tuesday 3 or 4, I honestly can’t recall what number we’re up to as we’ve had so many thus far. Hillary is expected to win big in PA as is Trump. However over the weekend it appears that Trump’s main GOP rivals decided to join forces against Trump. I don’t know what if anything they can do at this point as it appears that Trump will have the votes necessary to win. Many pundits on TV have suggested that anything could happen at the convention and have mentioned numerous conventions where the winner wasn’t who everyone thought it would be. The GOP needs to trend carefully here as this generation of Americans aren’t so naive and believe that they can fight city hall, moreover they’re more than willing to do it. Time will tell how this all works out…
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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