Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4 AM EST, here's what we see:
US Dollar: Jun. USD is Down at 98.785.
Energies: May Crude is Down at 49.23.
Financials: The June 30 year bond is Up 6 ticks and trading at 152.27.
Indices: The June S&P 500 emini ES contract is 1 tick Higher and trading at 2382.50.
Gold: The April gold contract is trading Up at 1265.80. Gold is 16 ticks Higher than its close.
Initial Conclusion
This is not a correlated market. The dollar is Down- and crude is Down- which is not 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 Down- which is correlated. Gold is trading Up+ which is 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.
At this hour Asia is trading mixed with half the exchanges Higher and the other half Lower. As of this writing all of Europe is trading Lower.
Possible Challenges To Traders Today
– Core Durable Goods Orders is out at 8:30 AM. This is major.
– Durable Goods Orders is out at 8:30 AM EST. This is major.
– Unemployment Claims are out at 8:30 AM EST. This is major.
– Goods Trade Balance is out at 8:30 AM EST. This is major.
– Prelim Wholesale Inventories is out at 8:30 AM. This is not major.
– Pending Home Sales m/m is out at 10 AM EST. This is major.
– Natural Gas Storage is out at 10:30 AM EST. This is major.
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 it's move at around 8 AM with no economic news in sight. 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 8 AM 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 8 AM and the YM hit a low. These charts represent the newest version of Trend Following Trades 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 plus ticks per contract on this trade. Each tick is worth $31.25. We added a Donchian Channel to the charts to show the signals more clearly.
Charts Courtesy of Trend Following Trades built on a NinjaTrader platform Click on an image to enlarge it.
Bias
Yesterday we gave the markets a neutral bias as we didn't see the indices moving with any conviction yesterday morning. A neutral bias means the markets could go in any direction but in this case the markets moved lower. The Dow dropped 21 points and the other indices lost ground as well. Today we aren't dealing with a correlated market and our bias is neutral.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
So today President Trump came out with his tax plan that was presented by Treasury Secretary Steve Mnuchin and Gary Cohn. The markets did not take to this plan warmly as it is clear that the plan will favor businesses and the top 1 percent. It will also seek to reduce individual deductions but don't worry according to Steve Mnuchin: "homeowners your mortgage interest payments will still be tax deductible." Really, what about property taxes? No mention was made of property taxes and they are vastly becoming more expensive than interest on a mortgage. What about health care bills? No mention. This plan was seemingly drawn up at the very last minute and had no substance to it whatsoever. It was Trump's way of saying "Look I tried to do something great within my first hundred days but no one would allow me to do so". Really? Have you forgotten that the so-called Freedom Caucus shot down your proposed healthcare bill that ironically you didn't write. Time will tell how this all works out but this president has much to learn about politics....
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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