Thursday, May 16, 2013

Pre-Market Global Review - 5/16/13 - "Good" Economic News Rallys Markets

Good Morning Traders,
As of this writing 4:40 AM EST, here’s what we see:
US Dollar –Up at 84.080 the US Dollar is Up 119 ticks and is trading at 84.080.             
Energies – June Oil is down at 93.45.        
Financials – The June 30 year bond is up 9 ticks and is trading at 144.15     
Indices – The June S&P 500 emini ES contract is down at 1651.25 and is down 12 ticks.  
Gold – The June gold contract is trading down at 1368.50 and is down 270 ticks from its close.
Initial Conclusion: Finally a correlated market, unfortunately it is correlated to the downside.  The dollar is up+ and oil is down- which is  normal and 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 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. 
Asia closed mixed, with the Aussie and Japan Nikkei closing lower.  The rest of Asia closed higher.  As of this writing Europe is trading mixed with London trading higher and the rest of Europe trading lower.
Possible challenges to traders today is the following            
1.  Building Permits are out at 8:30 AM EST.  This is major.        
2.  Core CPI is out 8:30 AM EST.  This is major. 
3.  CPI is out at 8:30 AM EST.  This is major.
4.  Unemployment Claims are out at 8:30 AM EST.  This is major.
5.  Housing Starts are out at 8:30 AM EST.  This is major.
6.  Philly Fed Manufacturing Index is out at 10 AM EST.  This is major.
7.  Natural Gas Storage is out at 10:30 AM EST.  This will move the Nat Gas markets.
8.  FOMC Member Raskin Speaks at 12:30 PM EST.  This is not major.

Yesterday we said our bias was neutral because the markets weren't correlated and we felt the market could move in any direction with the number of reports involved. Asia had closed higher and Europe was trading higher.  The net result being that the Dow advanced 61 points.  Today we are dealing with a correlated market however it is correlated to the downside.  Ordinarily I would our bias is to the downside however once again we have 8 economic reports out today, most of which are major.  Therefore our bias is neutral as the markets could be driven in any direction today.  Could this change? Of Course.  Remember anything can happen in a volatile market.
Yesterday we had 8 economic reports, none of which were really good.  Every report was negative except for the NAHB Housing Index which came 1 point higher than expected.  Mind you that the NAHB number is a survey of home builders, not homeowners.  What would you expect a home builder to say, things aren't that great?  Case-in-point recently my wife and I went to look at new homes by a major home builder.  They won't tell us the prices for a home on a new phase of development.  This plus Google going to $900.00 a share certainly didn't hurt as the markets went up.  You have to wonder what's fueling these markets as sooner or later it will be payback time and I suspect that this may catch many investors for a surprise.  Today we also have 8 economic reports, 6 of which are major.  Be mindful of this 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:

The video 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 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. Yesterday June crude dropped to a low of 92.13 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.

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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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