As of this writing 5:10 AM EST, here’s what we see:
US Dollar –Up at 82.445 the US Dollar is up 120 ticks and is trading at 82.445.
Energies – May Oil is down at 92.76.
Financials – The June 30 year bond is up 17 ticks and is trading at 146.24.
Indices – The June S&P 500 emini ES contract is down at 1585.25 and is down 10 ticks.
Gold – The June gold contract is trading down at 1555.70 and is down 92 ticks from its close.
Quick Note: Unless otherwise shown the above contract months are now June.
Initial Conclusion: This is a correlated market, unfortunately it is correlated to the downside. 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 down and the US dollar is trading higher which is 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.
All of Asia closed lower. As of this writing all of Europe is trading lower.
Possible challenges to traders today is the following
1. Core Retail Sales is out at 8:30 AM EST. This is major.
2. Retail sales are out at 8:30 AM EST. This is major.
3. PPI is out at 8:30 AM EST. This is major.
4. Core PPI is out at 8:30 AM EST. This is major.
5. FOMC Member Rosengren speaks at 8:45 AM EST. This is not major.
6. Preliminary UOM Consumer Sentiment is out at 9:55 AM EST. This is major.
7. Preliminary UOM Inflation Expectations are out at 9:55 AM EST. This is major.
8. Business Inventories are out at 10 AM EST. This is not major.
9. Bernanke speaks at 12:30 PM EST. This is major.
Yesterday we said our bias was neutral because the markets weren't correlated and we felt could be driven in any direction. Clearly the Unemployment numbers helped the market as they were less than expected The net result? The Dow closed 63 points higher. Today we have a correlated market but it is correlated to the downside, therefore our bias is to the downside. We have several economic reports today, most of which are major. Could this change? Of Course. Remember anything can happen in a volatile market.
Today marks the beginning of Bank Day meaning that the financial institutions will start to report their quarterly earnings. JP Morgan and Wells Fargo reports today, prior to market open. Citibank reports on the 15th, Goldman reports on the 16th, Bank of America reports the 17th and Morgan Stanley reports on the 18th. It shouldn't be any surprise to any reader of Market Tea Leaves that one of the key fundamentals of market correlation are the financials. You hear each day talk about correlation in our Market Bias video. If anything, you should realize that financials are a key cornerstone of what we do. If these numbers are positive, it means that going forward we should have a decent quarter. But as in all things we'll have to monitor and see.
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 downside. Could this change? Of course. In a volatile market anything can happen. We'll have to monitor and see.
Last Friday I had the opportunity to interview Carl Weiss from Algo Futures. We talked at length about his thoughts on the future of the markets and new and upcoming endeavors. Ultimately this is the story of an American entrepreneur and what he had to go thru to create a solution that can be used by any trader. If any reader wants to know and is curious about what it takes to be self-made in America, then you need to listen to this. Additionally our friends at TradersLog.com have graciously published my article on this subject. It can be viewed at:
My interview with Carl can be viewed at:
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.
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. Yesterday crude dropped to a low of 93.06 a barrel and held. We'll have to monitor and see if crude either goes lower or holds at the present level. It seems that at the present time crude's support is at 92.00 with resistance at 98.00 a barrel. 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.
- Budget Battle - ongoing.
- Debt Ceiling in the May time frame.
- European Contraction - happening now
Crude oil is trading lower and the US Dollar is declining. This is not 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. Additionally watch out for Ben Bernanke at 12:30 PM EST. He generally has a way of moving the markets. 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.
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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.
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