As of this writing 5:00 AM EST, here’s what we see:
US Dollar –Up at 83.330 the US Dollar is up 99 ticks and is trading at 83.330.
Energies – June Oil is down at 95.21.
Financials – The June 30 year bond is down 5 ticks and is trading at 144.27.
Indices – The June S&P 500 emini ES contract is down at 1624.50 and is down 20 ticks.
Gold – The June gold contract is trading down at 1442.00 and is down 46 ticks from its close.
Initial Conclusion: This is not a correlated market. The dollar is up+ and oil is down- which is normal but 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 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.
With the exception of the Nikkei exchange 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. Core Retail Sales are out at 8:30 AM EST. This is major.
2. Retail Sales are out at 8:30 AM EST. This is major.
3. Business Inventories are out at 10 AM EST. This is not major.
On Friday we said our bias was to the upside because the Bonds and USD were down. Asia had closed to the upside and Europe was trading higher. The net result? The Dow closed up 35 points. Today the markets aren't correlated and our bias is to the downside. Why? The Bonds and USD aren't correlated and Gold is trading lower. Asia closed mainly lower and currently Europe is trading lower. Could this change? Of Course. Remember anything can happen in a volatile market.
In our Market Bias video on Friday we mentioned that the market mover for the day was Ben Bernanke speaking as there wasn't any economic news to speak of. Well Ben did speak and although the markets moved in and out of positive territory all day, at the end the market closed up. Bernanke spoke mainly to the financial community (banks) in terms of conditions as they stand currently but also expressed concern that financial institutions may over reach in terms of yields. He was expressing concerns about an ultra low interest rate environment and the risks thereof. I believe he's concerned about the dangers of deflation as opposed to inflation. This is the same type of situation that Japan dealt with in the 1990's and may very well have to deal with again as their interest rate is lower than ours. I think Mr. Benanke needs to speak with anyone who does weekly food shopping. They will certainly inform him that prices aren't going down, quite the contrary; in many cases they're rising. So there is no real concern over deflation, it's more inflation that should be the object of concern. The Fed also stated in December that they will not consider raising the FFR (Federal Funds Rate) aka the overnight rate unless inflation creps up and the Unemployment Rate is below 6.5%. It doesn't appear as though they'll be backing down any time soon. Be that as it may the markets liked what they heard and reacted favorably to it.
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 Wednesday, May 1st I had the opportunity to interview Markus Heitkoetter. Markus is the CEO of Rockwell Trading and is living proof that anyone with the right mindset, desire and tenacity can be a successful trader. He offers a 296 page eBook that can be viewed on the Rockwell Trading website. It's entitled "The Complete Guide to Day Trading" I recall when Markus started Rockwell years ago and was always impressed with his focus on coaching and paying attention to detail. Once again our friends at TradersLog have agreed to publish the article and it can be viewed at:
http://www.traderslog.com/interview-with-markus-heitkoetter/
The video can be viewed at:
http://youtu.be/i-mIumI6ptU
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. On Friday June crude dropped to a low of 93.41 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 92.00 a barrel and resistance at 98. 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 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.
Recently Published Articles:
http://www.investing.com/analysis/rockwell-trading-ceo-heitkoetter:-a-simple,-timeless-trading-strategy-166093
http://www.forexcrunch.com/obamacare-and-its-impact-on-the-us
http://www.barchart.com/headlines/story/9971005/german-factory-orders-up-us-down
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.
For previous issues feel free to visit our archives.
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