As of this writing 6:05 AM EST, here’s what we see:
US Dollar –Up at 83.940 the US Dollar is Up 227 ticks and is trading at 83.940.
Energies – June Oil is down at 93.68.
Financials – The June 30 year bond is down 6 ticks and is trading at 143.28.
Indices – The June S&P 500 emini ES contract is down at 1646.25 and is down 7 ticks.
Gold – The June gold contract is trading down at 1413.00 and is down 115 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.
All of Asia closed higher. As of this writing all of Europe is trading higher.
Possible challenges to traders today is the following
1. PPI is out at 8:30 AM EST. This is major.
2. Core PPI is 8:30 AM EST. This is major.
3. Empire State Manufacturing Index is out at 8:30 AM EST. This is major.
4. TIC Long Term Purchases is out at 9 AM EST. This is not major.
5. Capacity Utilization Rate is out at 9:15 AM EST. This is not major.
6. Industrial Production is out at 9:15 AM EST. This is not major.
7. NAHB Housing Market Index is out at 10 AM EST. This is major.
8. Crude Oil Inventory is out at 10:30 AM EST. This will move the crude market.
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. However the Smart Money thought otherwise and the Dow closed up 123 points. Today we are not dealing with a correlated market and in theory our bias should be to the downside but we have 8 economic reports, 4 of which are major and can drive the markets in any direction. Therefore our bias is neutral. Could this change? Of Course. Remember anything can happen in a volatile market.
Well just when you think you've had everything figured the market pulls a surprise. Despite the fact that we didn't have a correlated market and there was no major economic news the Smart Money decides to propel the market higher. I've read somewhere that for the last 18 Tuesdays in a row the markets have traded higher. Now I personally wouldn't put too much stock into that as anything can happen and if the markets aren't correlated I wouldn't trust voodoo to make the markets higher. But it just goes to show you that anything can happen in a volatile market. If the big institutions decide that they're going higher, they're going higher. No point in fighting the tape. Today we have 8 economic reports, 4 of which are major. So be mindful of that if trading today.
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 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 93.88 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 10:30 AM when the crude inventory numbers 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.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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