As of this writing 5:00 AM EST, here’s what we see:
US Dollar –Down at 81.665 the US Dollar is Down 152 ticks and is trading at 81.665.
Energies – June Oil is down at 92.93.
Financials – The June 30 year bond is down 3 ticks and is trading at 148.09.
Indices – The June S&P 500 emini ES contract is up at 1594.50 and is up 10 ticks.
Gold – The June gold contract is trading down at 1471.2 and is down 9 ticks from its close.
Initial Conclusion: This is not a correlated market. The dollar is down- and oil is down- 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 lower which is correlated. Gold is trading lower which is not correlated with the US dollar trading down. 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 half the exchanges closing higher and the other half lower. As of this writing half of Europe is trading higher and the other half lower.
Possible challenges to traders today is the following
1. ADP Non-Farm Payroll is out at 8:15 AM EST. This is major.
2. Final Manufacturing PMI is out at 9 AM EST. This is not major.
3. ISM Manufacturing PMI is out at 10 AM EST. This is major.
4. Construction Spending is out at 10 AM EST. This is major.
5. ISM Manufacturing Prices are out at 10 AM EST. This is not major.
6. Crude Oil Inventories are out at 10:30 AM EST. This will move the crude market.
7. Total Vehicle Sales - All Day. This is major.
8. FOMC Statement is out at 2 PM EST. This is major.
9. Federal Funds Rate is out at 2 PM EST. This is major.
I cannot answer for the last couple of days as this is the 1st edition of Market Tea Leaves since Monday. What I see is a market that cannot make up it's mind in terms of direction. Asia closed mixed and currently is doing the same. We have an extraordinary number of reports that can serve to drive the markets in any direction today. Hence our bias is neutral, as the markets today can go anywhere. Could this change? Of Course. Remember anything can happen in a volatile market.
Well April is over and it's now May. The banks are closed in Europe for May Day celebrations and in the US we have a boatload of reports, most of which are major and drive the markets in any direction. As most of my subscribers are aware, I don't trade FOMC Day as for me historically teh markets do not behave with any sense of normalcy. In all likelihood the FOMC will issue a policy statement and the news media and pundits will be on the lookout for anything new that is said. I don't suspect that anything new will be said, but anything can happen in this market. I certainly don't think any of the analysts suspect that the Fed will change their stance on the FFR (Federal Funds Rate) which is the rate of interest they charge the banks to lend to them. As always, 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 neutral. 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 lower and the US Dollar is declining. 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. Yesterday June crude dropped to a low of 92.54 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 89.00 a barrel and resistance at 95. 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 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. 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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