As of this writing 5:05 AM EST, here’s what we see:
US Dollar –Down at 83.200 the US Dollar is down 165 ticks and is trading at 83.200.
Energies – June Oil is down at 95.08.
Financials – The June 30 year bond is up 8 ticks and is trading at 144.28.
Indices – The June S&P 500 emini ES contract is down at 1628.25 and is down 10 ticks.
Gold – The June gold contract is trading up at 1436.50 and is up 22 ticks from its close.
Initial Conclusion: This is not a correlated market. The dollar is down- and oil is down- which is not normal but 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 lower which is not correlated. Gold is trading higher which is 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.
The Asian markets closed mixed with the Aussie, Sensex and Singapore closing 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. NFIB Small Business Index is out at 7:30 AM EST. This is not major.
2. Import Prices are out at 8:30 AM EST. This is not major.
Yesterday we said our bias was to the downside because the Bonds and USD weren't correlated. Asia had closed to the downside and Europe was trading lower. The net result? The Dow closed down 26 points. Today the markets aren't correlated and our bias is to the downside. Why? The Bonds and USD aren't correlated and the indices are trading lower. Asia closed mixed and currently Europe is trading lower. Could this change? Of Course. Remember anything can happen in a volatile market.
In our Market Bias video yesterday we mentioned that Core Retail Sales and Retail Sales were going to be major market movers and whereas the report was good, it wasn't enough to drive the markets higher. But we mentioned that our bias was to the downside because the markets weren't correlated. That's the thing about Market Correlation, at the end of the day it usually prevails. We also mentioned our bias was to the downside because we didn't see correlation. Some of you have asked when is the best time to trade. I would suggest after 10 AM EST. Why 10 AM? Because the market usually changes direction at that time. What if a report comes out at 10 AM? Wait until 10:30. One of my rules is to never trade into a report but rather see how the market reacts to it and then capitalize. Why? Because we don't the results of the report and we don't know how the market to it. Just some food for thought.
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 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. On Friday June crude dropped to a low of 94.51 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 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.
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.
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