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 28, 2013
Good Morning Traders,
As
of this writing 4:40 AM EST, here’s what we see:
US Dollar –Up at 81.695 the US Dollar is up 23 ticks and is trading at 81.695.
Energies – April Oil is down at 92.56.
Financials – The 30 year bond is up 12 ticks and is trading at
145.17.
Indices – The March S&P 500 emini ES contract is up at 1516.75 and is up 4 ticks.
Indices – The March S&P 500 emini ES contract is up at 1516.75 and is up 4 ticks.
Gold – The April
gold contract is trading down at 1589.80 and is down 59 ticks.
Conclusion
This
is a nearly 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 the US dollar
is trading higher which is not correlated. Gold is trading lower which correlates 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.
With the exception of the Indian Sensex, the rest of Asia closed higher. As of this writing all of Europe is trading higher.
Possible challenges to traders today is the following:
- Preliminary GDP is out at 8:30 AM EST. This is major.
- Preliminary GDP Price Index is out at 8:30 AM EST. This is major
- Unemployment Claims are out at 8:30 AM EST. This is major.
- Chicago PMI is out at 9:45 AM EST. This is major.
- Natural Gas Storage is out at 10:30 AM EST. This will move the Nat Gas market.
- FOMC Member Raskin speaks at 12:30 PM EST. This is major.
Yesterday we said our bias was neutral because the underlying fundamentals were uncorrelated with the outlier being Ben Bernanke speaking. Again as on Tuesday the markets went straight up and never looked back. Again as on Tuesday the fundamentals still pointed to a lower market. The USD
and Bonds were trading higher as Bernanke spoke and even after the
market closed still pointed to a lower market. This can mean only one
of two things: a.) the underlying market fundamentals will correct or
b.) the market will go lower. As I write this the underlying market
fundamentals have not corrected and we are not dealing with a
correlated market. As such our bias is to the downside. Here's why. The Dow just hit a new 5 year high and Ben Bernanke isn't speaking today. Any time the market hits a fresh 5 year high the Smart Money takes capital off the table afterwhich they will reassess the market to determine their next move. Could
this change? Of course.
Remember anything can happen in a volatile market.
- Education
- Small Business
- FDA Food Inspections
- Research and Development
- FBI and law enforcement
It
is painfully aware to me that Congress has no intention of doing
anything on this issue. The GOP wants sequestration to happen. They
seem to believe that their number one goal is to starve the government.
What they fail to realize is that we the people are the government.
They don't seem to be mindful of the fact that many innocent government
employees (FBI, Law Enforcement, Meat Inspectors, etc.) will be effected
by the sequester and will wind up on furlough and hence unemployed.
Unemployment will increase and this no doubt will spill over to the
private sector. Does anyone know any employer who wouldn't jump at the
chance to layoff? I don't. Think about this for a moment. It's
illegal for any food retailer to put out meat that isn't inspected. If a
particular type of meat isn't inspected, they can only put meat that is
and has been inspected. What do you think will happen to the prices of
meat that they can legally put out? You guessed it. The price of that
meat will go up. This is one simple example. What about milk, eggs
and any other staple we take for granted? They need to understand that
what they are doing is liken to the person stuck in a dark cave with a
stick of dynamite in one hand and a match in the other; and then they
light the match to see their way forward. Currently Congress isn't even
in session right now and I suspect that they are willing to throw
caution to the wind and see what happens. I would also suggest that
this
will change come April 15th. Why April 15th? Because it's tax day?
No. The bill that Obama just recently signed extends the debt ceiling
into May but if Congress can't get a balanced budget by April 15th, they
will forgo their pay. This I have to see. Of course Speaker Boehner
has no problem blaming the President but fails to mention that
legislation comes out of the House of Representatives and currently
there is no bill on the floor to vote on. As an update to this the
Senate will be voting on a bill to balance the sequester spending cuts
with revenue increases but the GOP will hear none of it. Speaker
Boehner publicly stated "they've already had their revenue
increase."
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 higher open and 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:
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. Norman and his wife Trish are considered trailblazers in this field and have been for some time. If you're having issues trading or fear of "pulling the trigger" or you want to know "what do I need to do to take this to the next step." I would strongly recommend listening to what Norman has to say. Norman is no stranger to trading as he was at one time a floor trader himself. This is someone who has the experience and scars to prove it. I recently had the opportunity to interview Norman a couple of weeks ago in a Q&A type setting. Here's the interview:
Future Challenges:
- Sequester spending cuts to commence March 1st.
- 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 when the markets give us better direction. 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