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Monday, August 18, 2014

Russia "Attacks"

Russia “Attacks”

Good Morning Traders,

As of this writing 5:25 AM EST, here’s what we see:

US Dollar: Up at 81.495, the US Dollar is up 26 ticks and is trading at 81.4955.

Energies: October Crude is down at 94.42.

Financials: The Sept 30 year bond is down 7 ticks and trading at 140.26.

Indices: The Sept S&P 500 emini ES contract is up 38 ticks and trading at 1961.00.

Gold: The October gold contract is trading down at 1302.20 and is down 32 ticks from its close.

Initial Conclusion

This is not correlated market. The dollar is up+ and oil is down- which is normal but 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 indices are up and the US dollar is trading up which is not correlated. Gold is trading lower which is correlated with the US dollar trading up. 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 higher mainly higher with the exception of the Singapore exchange which traded fractionally lower. As of this writing all of Europe is trading higher.

Possible Challenges To Traders Today

  1. NAHB Housing Market Index is out at 10 AM EST. This is major.

  2. Lack of major economic news.


On Friday the Swiss Franc made it’s move at around 9 AM EST after the major economic news was reported. The USD hit a low at around that time and the Swiss Franc hit a high. If you look at the charts below the USD gave a signal at around 9 AM EST, while the Swiss Franc 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 USD hit a low at 9 AM EST and the Swiss Franc hit a high. I’ve changed the charts to reflect a 5 minute time frame and added a Darvas Box to make it more clear. This represented a shorting opportunity on the Swiss Franc, as a trader you could have netted 10-12 ticks on this trade. Remember each tick on the Swiss Franc is equal to $12.50 versus $10.00 that we usually see for currencies.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Click on an image to enlarge it.

Swiss Franc – September, 2014 – 8/15/14

USD – September, 2014 – 8/15/14


On Friday we said our bias was to the upside as the futures were pointed in that direction. However for reasons we’ll discuss shortly. the markets had other ideas as the Dow dropped 51 points, the Nasdaq gained 12 and the S&P came in flat. Today we aren’t dealing with a correlated market but our bias is to the upside.

Could this change? Of Course. Remember anything can happen in a volatile market.


Friday morning we said our bias was to the upside and all morning long the futures were pointed to an upside open. Economic news came out and the futures were still pointed to an upside open even though Empire State Manufacturing wasn’t too stellar. The markets opened higher as we said it would and was fine till around 11 AM when news came out that the situation in the Ukraine isn’t quite over. It appears as though fighting has broken out between Ukraine forces and a Russian military convoy in Ukrainian territory (even though it was rebel held Ukrainian territory). The Dow dropped by over 100 points and didn’t regain parity for the rest of the session. When the opening bell came at 9:30 AM EST the Dow was UP by over 100 points. This is one of situations where when we tell you “anything can happen in a volatile market” we mean anything can happen……..

Just so you understand, Market Correlation is Market Direction. It attempts to determine the market direction for that day and it does so by using a unique set of tools. In fact TradersLog just published an article on this subject that can be viewed at:

Each day in this newsletter we provide viewers a snapshot of the Swiss Franc versus the US dollar as a way and means of capitalizing on the inverse relationship between these two assets. Futures Magazine recognized this correlation as well. So much so that they printed a story on it in their December issue. That story can be viewed at:

View article on Futures Mag

Many of my readers have been asking me to spell out the rules of Market Correlation. Recently Futures Magazine has elected to print a story on the subject matter and I must say I’m proud of the fact that they did as I’m Author of that article. I encourage all viewers to read that piece as it spells out the rules of market correlation and provides charts that show how it works in action. The article is entitled “How to Exploit and Profit from Market Correlation” and can be viewed at:

View article on Futures Mag

As a follow up to the first article on Market Correlation, I’ve produced a second segment on this subject matter and Futures Magazine has elected to publish it. It can be viewed at:

View article on Futures Mag

As readers are probably aware I don’t trade equities. While we’re on this discussion, let’s define what is meant by a good earnings report. A company must exceed their prior quarter’s earnings per share and must provide excellent forward guidance. Any falloff between earning per share or forward guidance will not bode well for the company’s shares. This is one of the reasons I don’t trade equities but prefer futures. There is no earnings reports with futures and we don’t have to be concerned about lawsuits, scandals, malfeasance, etc.

Anytime the market isn’t correlated it’s giving you a clue that something isn’t right and you should proceed with caution. Today our bias is to the upside. Could this change? Of course. In a volatile market anything can happen. We’ll have to monitor and see.

As I write this the crude markets are trading lower and the US Dollar is advancing. This is normal. Think of it this way. If the stock market is trading lower, it’s safe to assume that the crude market will follow suit and vice-versa. Crude trades with the expectation that business activity is expanding. The barometer of which is the equities or stock market. If you view both the crude and index futures side by side you will notice this. On Friday October crude dropped to a low of $93.55 a barrel and crashed way below the $100 a barrel mark. We’ll have to monitor and see if crude either goes lower or holds at the present level. It would appear at the present time that crude has support at $93.13 a barrel and resistance at $95.92. This could change. All we need do is look at what happened last fall when crude was trading over $100.00 a barrel. We’ll have to monitor and see. Remember that crude is the only commodity that is reflected immediately at the gas pump.

If trading crude today consider doing so after 10 AM EST when the markets gives us better direction. While we’re on the subject of crude Futures Magazine has decided to print an article we produced on crude and how to trade it. That article can viewed at:

View article on Futures Mag

Future Challenges

Ukraine Situation not so Subdued

On Thursday evening/Friday morning a news story came out that suggested that a Russian convoy of trucks was heading into Ukraine territory for “humanitarian” purposes. I didn’t pay attention to it because the situation in the Ukraine appeared to be subdued. At around 11 AM EST it was then announced that the Ukraine military destroyed a military convoy in Ukraine territory. The Dow dropped by over 100 points whereas when it opened it was up by over 100 points. A good day ruined. One has to wonder who’s telling the truth here and who isn’t because Russia has denied all of this. A convoy for humanitarian aid is now a military convoy that was destroyed? We’ve stated previously the Ukraine doesn’t feel safe without NATO aid and NATO won’t do anything unless the US is committed. The US will not do this and quite frankly what’s wrong with NATO? Why does the US have to get involved in every pot shot war that erupts? The US is involved with Iraq and is attempting to negotiate a settlement with the Gaza Strip situation. The European are concerned with Russian Natural Gas getting shut off this winter and are loath to rattle the Russian bear. Ukraine on the other hand is terrified of the Russian bear and wants assurances that they can rely on NATO. This has all the makings of another Cold War erupting but time will tell how it all works out….

Forex Alchemy

Forex Alchemy, a friend of Market Tea Leaves published an article entitled Ramifications of a BRICs World Bank Update Here it is This article can be viewed at:

View Article

Crude Oil Is Trading Lower

Crude oil is trading lower and the US Dollar is advancing. This is normal. Crude typically makes 3 major moves (long or short) during the course of any trading day: around 9 AM EST, 11 AM EST and 2 PM EST when the crude market closes. If crude makes major moves around those time frames, then this would suggest normal trending, if not it would suggest that something is not quite right. As always watch and monitor your order flow as anything can happen in this market. This is why monitoring order flow in today’s market is crucial. We as traders are faced with numerous challenges that we didn’t have a few short years ago. High Frequency Trading is one of them. I’m not an advocate of scalping however in a market as volatile as this scalping is an alternative to trend trading.

Remember that without knowledge of order flow we as traders are risking our hard earned capital and the Smart Money will have no issue taking it from us. Regardless of whatever platform you use for trading purposes you need to make sure it’s monitoring order flow. Sceeto does an excellent job at this. To fully capitalize on this newsletter it is important that the reader understand how the various market correlate. More on this in subsequent editions.

Nick Mastrandrea is the author of Market Tea Leaves. Market Tea Leaves is a daily newsletter that is dedicated to your trading success. We teach and discuss market correlation. Market Tea Leaves is published daily, pre-market in the United States and can be viewed at Interested in Market Correlation? Want to learn more? Signup and receive Market Tea Leaves each day prior to market open. As a subscriber, you’ll also receive our daily Market Bias video that is only available to subscribers.

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