Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:05 AM EST, here’s what we see:
US Dollar: Mar. USD is Down at 102.305.
Energies: February Crude is Down at 53.14.
Financials: The Mar 30 year bond is Up 8 ticks and trading at 150.30.
Indices: The March S&P 500 emini ES contract is 8 ticks Lower and trading at 2262.25.
Gold: The February gold contract is trading Up at 1174.00. Gold is 87 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 Up+. 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 Down- and Crude is trading Down- which is not 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.
Asia traded mainly higher with the exception of the Nikkei exchange which traded lower. As of this writing Europe is trading mixed with half the exchanges higher and the other half lower.
Possible Challenges To Traders Today
– Challenger Job Cuts is out at 7:30 AM EST. This is major.
– ADP Non-Farm Employment Change is out at 8:15 AM. This is major.
– Unemployment Claims are out at 8:30 AM EST. This is major.
– Final Services PMI is out at 9:45 AM EST. This is not major.
– ISM Non-Manufacturing PMI is out at 10 AM EST. This is major.
– Natural Gas Storage is out at 10:30 AM EST. This is major.
– Crude Oil Inventories are out at 11 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 9 AM EST with no real economic news in sight. The ZB hit a low at around that time and the YM hit a high. If you look at the charts below ZB gave a signal at around 9 AM EST and the YM was moving lower at the same time. Look at the charts below and you’ll see a pattern for both assets. ZB hit a low at around 9 AM EST and the YM hit a high. 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 long opportunity on the 30 year bond, as a trader you could have netted about 30 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.
Bias
Yesterday we gave the markets an upside bias as both the Bonds and the USD were trading lower yesterday morning and this is indicative of an upside move, hence our bias was to the upside. The Dow rose 60 points and the other indices rose as well. Today we aren’t dealing with a correlated and our bias is to the downside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
It looks like the Trump Bump is continuing its move forward as this is what the pundits are calling the Trump rally. We suggested yesterday morning that the markets would move higher as the USD and the Bonds were both trading lower and this is indicative of an upside move. The markets didn’t disappoint as the Dow gained 60 points and the other indices rose as well and mind you that was with a hawkish Fed Meeting Minutes which stated that the Fed could raise interest rates sooner if warranted. What would make it warranted? An economy that is growing too fast, too soon and price hikes (inflation). If I were them at this point I wouldn’t be too concerned about the economy growing. We’ve been looking for growth for the past 8 years and thus far have seen a very tepid recovery. Producer Price Hikes (inflation)? I wouldn’t be too worried about that either as currently it’s a race to the bottom in terms of prices. Want proof? Go to any Walmart and compare….
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.
Recommended Content
Editors’ Picks
AUD/USD favours extra retracements in the short term
AUD/USD kept the negative stance well in place and briefly broke below the key 0.6400 support to clinch a new low for the year on the back of the strong dollar and mixed results from the Chinese docket.
EUR/USD now shifts its attention to 1.0500
The ongoing upward momentum of the Greenback prompted EUR/USD to lose more ground, hitting new lows for 2024 around 1.0600, driven by the significant divergence in monetary policy between the Fed and the ECB.
Gold aiming to re-conquer the $2,400 level
Gold stages a correction on Tuesday and fluctuates in negative territory near $2,370 following Monday's upsurge. The benchmark 10-year US Treasury bond yield continues to push higher above 4.6% and makes it difficult for XAU/USD to gain traction.
Bitcoin price defends $60K as whales hold onto their BTC despite market dip
Bitcoin (BTC) price still has traders and investors at the edge of their seats as it slides further away from its all-time high (ATH) of $73,777. Some call it a shakeout meant to dispel the weak hands, while others see it as a buying opportunity.
Friday's Silver selloff may have actually been great news for silver bulls!
Silver endured a significant selloff last Friday. Was this another step forward in the bull market? This may seem counterintuitive, but GoldMoney founder James Turk thinks it was a positive sign for silver bulls.