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Wednesday, February 18, 2015

The Greeks Are At It...again

The Greeks Are At It Again…

Good Morning Traders,

As of this writing 4:30 AM EST, here’s what we see:

US Dollar: Up at 94.210, the US Dollar is up 63 ticks and is trading at 94.210.

Energies: March Crude is down at 53.59.

Financials: The Mar 30 year bond is up 10 ticks and trading at 144.13

Indices: The Mar S&P 500 emini ES contract is up 5 ticks and trading at 2097.25.

Gold: The February gold contract is trading up at 1209.10 and is up 5 ticks from its close.

Initial Conclusion

This is not a correlated market. The dollar is up+ and oil is down- which is normal and 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 higher which is not 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.

All of Asia traded higher. As of this writing all of Europe is trading to the upside.

Possible Challenges To Traders Today

Building Permits are out at 8:30 AM EST. This is major.

PPI m/m is out at 8:30 AM EST. This is major.

Core PPI m/m is out at 8:30 AM EST. This is major.

Housing Starts are out at 8:30 AM EST. This is major.

Capacity Utilization Rate is out at 9:15 AM EST. This is not major.

Industrial Production m/m is out at 9:15 AM EST. This is not major.

FOMC Meeting Minutes is out at 2 PM EST. This is major.


Yesterday the Swiss Franc made it’s move at around 8:45 AM EST after the Empire State Manufacturing Index 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 8:45 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 8:45 AM EST and the Swiss Franc hit a high. These charts represent the latest version of Trend Following Trades and I’ve changed the timeframe to a Renko chart to display better. This represented a shorting opportunity on the Swiss Franc, as a trader you could have netted 20 plus ticks on this trade. We added a Donchian Channel to the charts to show the signals more clearly. 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 – March, 2015 – 2/17/15

USD – March, 2015 – 2/17/15


Yesterday we said our bias was to the downside as Crude was trading higher and Europe was pointed lower. The markets had other ideas as the Dow gained 29 points and the other indices gained ground as well. Today we aren’t dealing with a correlated market and our bias is neutral. A neutral bias means the markets could go in any direction.

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


Yesterday was the first trading day after a long holiday weekend. Our bias was to the downside as all of Europe was trading down, Crude was trading higher and the indices weren’t following thru, hence a downside bias. Ironically enough the first half of yesterday’s trading session was down and then mid-day they rose and didn’t look back. So what happened? Yesterday it was all about the Greek debt crisis and the fact that the European Finance Ministers and the Greeks couldn’t see eye-to-eye. Monday in Europe came and went with no accord in sight. Then mid-day yesterday a rumor circulated that claimed that the Greeks would seek an extension of the current bailout plan that they have now. This lifted the markets accordingly. I wouldn’t put too much stock in this as the fine details have to be ironed out and the Greeks are tricky when it comes to this. Meaning they are still seeking a new deal and wish to tear up the current one. I’m sure they could do this if they payoff the existing debt. The crux of this matter has been that they want forgiveness of their current debt; meaning we don’t pay you back and the Germans have said “nein, you will pay us back.” Time will tell how this all works out but in the meantime the drama continues…

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

Many subscribers have asked what is the best time of day to trade? A recent article published by Futures Magazine may shed some light on the subject:

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 neutral. 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 declining and the futures are trading lower. This is normal. Crude and the markets are now reverse correlated such that when the markets are rising, crude drops and vice-versa. Yesterday March crude dropped to a low of $50.83 a barrel. It would appear at the present time that crude has support at $51.52 a barrel and resistance at $54.86. This could change. We’ll have to monitor and see. Remember that crude is the only commodity that is reflected immediately at the gas pump. On Monday, December 22nd OPEC reiterated their stance not to cut production. OPEC appears to be adamant about keeping production where it is as they believe that oil will rebound. What they haven’t figured out yet is that the more countries like Canada and the US produce their own crude (by whatever means) the more crude prices will fall.

If trading crude today consider doing so after 10 AM EST when the markets gives us better direction.

Future Challenges

So on Tuesday, January 20th we had the State of the Union address or should I say the opening salvo in the Obama wars?

If anyone is thinking or considering that political gridlock will subside for the next two years. Think again. President Obama is already proposing tax hikes for the wealthy via increased inheritance taxes and capital gains. This will not go over well with the GOP who will abruptly shoot down any such notion. On the Obama side; he’s already said that he’ll veto the Keystone XL pipeline even if it passes thru Congress. Additionally he’s already stated that he’ll veto 4 other bills if it passes Congress and lands on his desk. So I think it’s safe to say that we won’t see DC coming together anytime soon. As an update to this; the Senate and House voted in favor of the Keystone XL pipeline 62-36 but not enough to override a presidential veto. Well it looks like President Obama will get his chance to veto a bill.

This is the problem with a two party system. You only have one other choice to go to if you don’t like what the prevailing party is doing. The US really needs a third political party to break the gridlock of the other two and to act as a bulkhead against the extremes of the other two parties.

Will the newly formed Greek government and the EU reach an accord? We should know better this upcoming week.

Crude Oil Is Trading Lower

Crude oil is trading lower and the markets are 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.

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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