As of this writing 4:20 AM EST, here’s what we see:
US Dollar –Up at 82.895 the US Dollar is up 49 ticks and is trading at 82.895.
Energies – June Oil is up at 88.32.
Financials – The June 30 year bond is down 14 ticks and is trading at 147.22.
Indices – The June S&P 500 emini ES contract is up at 1553.00 and is up 20 ticks.
Gold – The June gold contract is trading up at 1421.20 and is up 256 ticks from its close.
Initial 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 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 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.
Asia with the exception of Shanghai closed higher. As of this writing all of Europe is trading higher.
Possible challenges to traders today is the following
1. FOMC Member Dudley speaks at 8:30 AM EST.
2. Existing Home Sales are out at 10 AM EST. This is major.
On Friday we said our bias was to the upside as the markets were correlated as such. Whereas the Dow did close higher by 11 points, it was a bumpy ride. Today the markets (as of this writing) aren't correlated however our bias is to the upside today. The reason is because the bond market is trading lower and Gold is trading higher. Gold has proven itself to be a bellwether in terms of market direction. Look at what happened last week when it dropped. Could this change? Of Course. Remember anything can happen in a volatile market.
As it relates to "Affordable Care" I happen to be in a unique position. I'm a licensed insurance professional in my state of domicile. Here in New Jersey (aka Chris Christieland) we have some of the toughest regulations for insurance companies in the nation. Recently I had the opportunity to explore some of the ramifications of the Affordable Care Act aka Obamacare. When this law was first enacted in 2010, I like many of my countrymen applauded the act as the United States is the only civilized nation in the Western world that doesn't have national healthcare. However, there are some cracks in the foundation, so to speak. First, the threshold for "vouchers" is $93,000, meaning that if a family doesn't earn a minimum of that amount, they're entitled to "vouchers" or tax credits to help pay for premiums. You might say "well that sounds like a good deal." It would be except that the law makes no stipulation on what is considered "affordable." Most major insurance carriers are publicly traded entities, which means they are beholden to share owners, not policyholders. What does anyone think is going to happen if by law these firms must offer benefits to people who wouldn't ordinarily qualify for benefits? The premiums will go up. Case-in-point a family that currently pays $1,100.00 a month for benefits on Cobra and now has to get an individual plan will see that premium increase to upwards past $2,000.00 and the so-called voucher will only pay for half that amount. New Jersey does not have cobra continuation and some well know firms have refused to offer insurance here because the regulations are that tough. I assumed when this law was passed that the government would pay for benefits for those persons who couldn't afford insurance by other means. Nope. Everyone pays. I suspect that as time progresses we'll find that the Affordable Care Act isn't that affordable.
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 upside. 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:
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 slightly higher and the US Dollar is advancing. This is not 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. On Friday June crude dropped to a low of 87.82 a barrel and held. We'll have to monitor and see if crude either goes lower or holds at the present level. It would appear at the present time that crude has support at 85.00 a barrel and resistance at 92. 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 August time frame.
- European Contraction - happening now
Crude oil is trading slightly higher 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. 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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