Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:10 AM EST, here’s what we see:
US Dollar: Sept. USD is Down at 93.935.
Energies: Oct '18 Crude is Up at 69.04.
Financials: The Dec 30 year bond is Down 8 ticks and trading at 142.04. Please note the current month is December, 2018.
Indices: The Sept S&P 500 emini ES contract is 12 ticks Higher and trading at 2891.50.
Gold: The Dec Gold contract is trading Up at 1213.20. Gold is 50 ticks Higher than its close.
Initial Conclusion
This is not a correlated market. The dollar is Down- and Crude is Up+ which is 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 S&P is Higher and Crude is trading Higher which is not correlated. Gold is trading Up+ which is correlated with the US dollar trading Lower. 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 Higher with the exception of the Shanghai exchange which is fractionally Lower at this time. Currently all of Europe is trading Higher.
Possible Challenges To Traders Today
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Core Retail Sales is out at 8:30 AM EST. This is major.
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Retail Sales 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 is out at 9:15 AM EST. This is major.
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Prelim UoM Consumer Sentiment is out at 10 AM. This is major.
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Business Inventories m/m is out at 10 AM EST. This is major.
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Prelim UoM Inflation Expectations is out at 10 AM. 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 8:30 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 8:30 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 8:30 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 20 ticks per contract on this trade. Each tick is worth $31.25.
Charts Courtesy of MultiCharts built on an AMP platform.
Bias
Yesterday we gave the markets an Upside bias and the markets didn't disappoint. The Dow rose by 147 points and the other indices gained 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
It looks as though the economic news reported yesterday helped to boost the markets as the indices gained ground. Unemployment Claims were down and the CPI and Core CPI rose less than expected and this led the markets to believe that perhaps the Fed won't raise rates any time soon. But as in all things only time will tell.
On Thursday, April 5th we had the honor and privilege to be interviewed by David Lincoln on his You Tube channel. David is a floor trader for the options markets. If you listen to this interview, you will enjoy 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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