This newsletter provides free market direction trading insights that are derived from our seasoned and unique, inter-market analysis. We hope that this information will provide both the novice and seasoned trader with valuable assistance. Our approach is to harvest clues from the Market's “tea leaves” as to what the market is doing or is likely to do.
February 14, 2013
Good
Morning Traders,
As
of this writing 5:20 AM EST, here’s what we see:
US Dollar –Up at 80.630 the US Dollar is up 463 ticks and is trading at 80.630
Energies – March Oil is up at 97.16.
Financials – The 30 year bond is up 2 ticks and is trading at
142.22.
Indices – The March S&P 500 emini ES contract is down at 1514.25 even and is down 12 ticks.
Indices – The March S&P 500 emini ES contract is down at 1514.25 even and is down 12 ticks.
Gold – The April
gold contract is trading down at 1642.00 and is down 33 ticks.
Conclusion
This
is not a correlated market. The dollar is up+ and oil is up+
which is not normal and the 30 year bond is trading up which correlates with
the US dollar 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 the US dollar
is trading higher. Gold is trading down which correlates with the
US
dollar trading higher. 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.
With the exception of the Sensex and Singapore indices the rest of Asia closed higher. As of this writing all of Europe is trading lower. Of course it doesn't help that Europe just reported that their economy contracted by 0.6%.
Possible challenges to traders today is the following:
- Unemployment Claims are out at 8:30 AM EST. This is major.
- FOMC Member Tarullo speaks at 10:30 AM EST. This is major.
- Natural Gas Storage is out at 10:30 AM EST. This will move the Nat Gas market.
- FOMC Member Bullard speaks at 12:50 PM. This is major.
- 30 Year Bond Auction starts at 1 PM EST. This could effect afternoon trading.
Yesterday we said our bias was to the long side but the Dow closed 36 points lower. Yet the Nasdaq and S&P both gained on the session. Ordinarily I would say that anything can happen in a volatile market and whereas that is true; I feel the need to point out something to you. The Dow was poised to go higher yesterday and initially it did. It gained about 10 points and then around 10 AM EST a story appeared that suggested that Core Retail Sales for January weren't as robust as December due to the 2% tax hike in working Americans paychecks. Now call me foolish but is there anything significant that happens in December to stimulate consumer spending and therefore Retail Sales? Anything? Could it be the Holidays? The report completely omitted the fact that the expectation was 0.1% and the report came in at 0.2% beating expectation. Now you might be asking how can this happen? Most traders don't view all the facts, they read headlines and if the headline isn't positive, they head for the exits. My point to you is that as a trader you need to be cognizant of this because uninformed headlines written by uninformed reporters can the move the markets. Today market correlation is calling for a lower open
and our bias is toward the short side. Here's why. The markets are
nearly correlated to the downside with the only missing ingredient being Crude. If Crude
were trading lower I would say we had a completely correlated market, to the downside.
Additionally the USD is trading higher which is conducive to a bearish
stance. As of this writing Europe is trading lower and has been moving
in and out of positive territory all morning.
Could this change? Of course.
Remember anything can happen in a volatile market.
Yesterday we said our bias was towards the long side because both the USD and Bonds were trading lower. However given what happened yesterday I feel compelled to provide a short video on why the Dow fell:
Yesterday we said our bias was towards the long side because both the USD and Bonds were trading lower. However given what happened yesterday I feel compelled to provide a short video on why the Dow fell:
On the political front, no sooner had the President delivered the State of Union address when the GOP took pot shots at it. Speaker Boehner pooh poohed raising the minimum wage to $9 an hour suggesting that this will cut job growth when everyone's asking "where are the jobs?" If you ask me, I'll tell you what will cut economic growth. The Congressional lack of coming to terms on the sequester will. Just so you're aware of what will be cut if Congress does
not come to terms on this issue:
- Education
- Small Business
- FDA Food Inspections
- Research and Development
- FBI and law enforcement
This is the new and improved GOP in action. They won't outwardly hold
the country hostage as they did in 2011; they'll set up events such that
it works out that way. So come March 1st they'll just innocently sit
back and say "oh well we have to cut, it's the law you know." I've been
wondering why they're so eager to extend the debt ceiling. They're
waiting for a tsunami of events to occur such that there will be no
other alternative. If
you're wondering
what this has to do with markets; I would say to you everything. Look
at what happened during the recent fiscal cliff crisis. If you're
wondering why we haven't had correlated markets since the election, look
no further. The markets do not like uncertainty when it comes to
fiscal issues and anything that reeks of uncertainty is not viewed in a
positive light. The Smart Money is loving it because thus far they made
any issues about March 1st or sequester spending cuts. Will the
markets survive? of course. But it also seems to me that the GOP knows
all too well that Congress will only act when it has to. In other
words, they know that DC drags it's feet when it comes to spending cuts
and they've setup events such that it has to happen.
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 market correlation is calling for a lower open but our bias is towards the long side. Could this change? Of course. In a volatile market anything can happen. We'll have to monitor and see. For awhile now we've promised a video on how a trader can use Market Correlation in tandem with their daily trading. A good friend of Market Tea Leaves: Carl Weiss of Sceeto and I produced a video on December 22nd that shows this. Here it is:
http://youtu.be/Ysx-nOgAtkI
Please note the video is about a half hour in length and we plan on producing more in the near future. Also note that in the near future we will have other videos where we will interview various trading leaders.
Oftentimes we listen to traders talk about problems and issues they are confronted with. One issue that keeps re-surfacing deals with trader psychology. Now I can deal with a market issue, I can deal with a trading issue but I'm not a trading psychologist. A good friend of Market Tea Leaves, Mr. Norman Hallett has been a leader in this field for over 20 years. I've followed his work for over 8 years and I highly recommend it. You can view Norman at:
http://www.thedisciplinedtrader.com/nick
Future Challenges:
- Sequester spending cuts to commence around early March
- Debt Ceiling in the May time frame.
- European Contraction
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 7 AM EST, 9 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. If you feel compelled to trade,
consider doing so after 10 AM EST when the markets give us better
direction. Also be aware that this afternoon at 1 PM EST the 30 Year Bond Auction starts and this has the capacity to move the
markets in the afternoon. 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
blogs.
To View previous articles of Market Tea Leaves:
www.benzinga.com/author/market-tea-leaves
To Subscribe Click Here:
http://eepurl.com/uoQzH
To View previous articles of Market Tea Leaves:
www.benzinga.com/author/market-tea-leaves
To Subscribe Click Here:
http://eepurl.com/uoQzH
No comments:
Post a Comment