As of this writing 5:50 AM EST, here’s what we see:
US Dollar –Up at 82.085 the US Dollar is up 262 ticks and is trading at 82.085.
Energies – June Oil is down at 88.21.
Financials – The June 30 year bond is up 3 ticks and is trading at 147.24.
Indices – The June S&P 500 emini ES contract is down at 1560.00 and is down 36 ticks.
Gold – The June gold contract is trading down at 1384.70 and is down 34 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 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 higher 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 closed mixed with the Aussie and Nikkei higher and the rest of Asia closed lower. As of this writing all of Europe is trading lower.
Possible challenges to traders today is the following
1. Crude Oil Inventories are out at 10:30 AM EST. This will move the oil markets.
2. FOMC Member Rosengren speaks at 12 noon EST. This is not major.
3. Beige Book is out at 2 PM EST. This is major
Yesterday we said our bias was to the upside as we felt that after the sell off on Monday, the markets were due for a rebound. The net result? The Dow gained 158 points. Today the markets are correlated but are correlated to the downside. Hence our bias is to the downside. Could this change? Of Course. Remember anything can happen in a volatile market.
Is it me or has anyone else noticed that since the sequester came into play, the economic reports we've been getting have been less than stellar? On Monday the Empire State Manufacturing index was down, NAHB housing numbers down and yesterday Building Permits were down. I noticed this on Friday and wrote an article about it. That article can be viewed at http://www.forexcrunch.com/effects-of-sequestrationthus-far/
it makes for interesting reading as we are now seeing the effects of sequestration.
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.
On Friday, April 5th 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:
http://www.traderslog.com/interview-with-carl-weiss/
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 June crude dropped to a low of 88.46 a barrel in the overnight session and as of this writing is starting to rebound. We'll have to monitor and see if crude either goes lower or holds at the present level. We'll have to see where crude falls to before we can establish a support and resistance level. At this time crude can fall further. 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.
Future Challenges:
- Budget Battle - ongoing.
- Debt Ceiling in the August time frame.
- European Contraction - happening now
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 10:30 AM when the inventory are released and 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.
Recently Published Articles:
http://www.barchart.com/headlines/story/9204041/the-debt-ceiling-and-its-impact-on-the-global-economy
http://www.forexcrunch.com/effects-of-sequestrationthus-far/
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 issues of Market Tea Leaves visit our archive.
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