Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:40 AM EST, here’s what we see:
US Dollar: March USD is Up at 96.940.
Energies: March '19 Crude is Up at 54.47.
Financials: The Mar 30 year bond is Up 9 ticks and trading at 146.25.
Indices: The Mar S&P 500 emini ES contract is 26 ticks Lower and trading at 2737.00.
Gold: The Feb Gold contract is trading Up at 1318.40. Gold is 48 ticks Higher 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 Higher as well. The Financials should always correlate with the US dollar such that if the dollar is lower then bonds should follow and vice-versa. The S&P is Lower and Crude is trading Lower which is not correlated. Gold is trading Higher which is not correlated with the US dollar trading Higher. 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.
At this hour all of Asia is trading Lower. Currently Europe is trading Higher with the exception of the German Dax which is trading Lower.
Possible Challenges To Traders Today
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Empire State Manufacturing Index is out at 8:30 AM EST. This is major.
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Import Prices m/m is out at 8:30 AM EST. This is major.
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Capacity Utilization Rate is out at 9:15 AM EST. This is major.
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Industrial Production m/m is out at 9:15 AM EST. This is major.
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Prelim UoM Consumer Sentiment is out at 10 AM EST. Major
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Prelim UoM Inflation Expectations are out at 10 AM EST. This is major.
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TIC Long-Term Purchases are out at 4 PM EST.
Treasuries
We've elected to switch gears a bit and show correlation between the 30 year bond (ZB) 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 the ZB made a major move at around 9 AM EST. The ZB hit a High at around that time and the YM hit a Low. If you look at the charts below ZB gave a signal at around 9 AM EST and the YM was moving Higher at the same time. Look at the charts below and you'll see a pattern for both assets. ZB hit a High at around 9 AM and the YM was moving Higher at the same time. These charts represent the newest version of MultiCharts and I've changed the timeframe to a 30 minute chart to display better. This represented a Shorting opportunity on the 30 year bond, as a trader you could have netted about 15 ticks per contract on this trade. Each tick is worth $31.25. Please note: the front month for the ZB contract is now March, 2019
Charts Courtesy of MultiCharts built on an AMP platform.
Bias
Yesterday we gave the markets a Neutral bias as both the USD and the Bonds were trading Higher Thursday morning. The Dow dropped 104 points, the S&P lost 7 but the Nasdaq gained 7. All in all a Mixed or Neutral day. Today we aren't dealing with a correlated market and our bias is to the Downside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday morning we gave the markets a Neutral bias as the USD and the Bonds were trading Higher but the indices kept to the Upside. Later on during the session it was revealed that the President would sign a bill to avert a government shutdown. However by the same token he's declaring a State of Emergency regarding the Border Wall. This was something he eluded to during the State of the Union address last week. On a lighter note, Monday is Presidents Day and of course a retail holiday. It is also a day for some well needed R&R as the markets are closed for that 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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