As of this writing 5:35 AM EST, here’s what we see:
US Dollar –Up at 84.070 the US Dollar is Up 213 ticks and is trading at 84.070.
Energies – July Oil is down at 96.77.
Financials – The June 30 year bond is up 1 tick and is trading at 143.25.
Indices – The June S&P 500 emini ES contract is down at 1663.00 and is down 6 ticks.
Gold – The June gold contract is trading down at 1376.80 and is down 74 ticks from its close.
Initial Conclusion: This is 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 fractionally and the US dollar is trading higher which is correlated. Gold is trading lower which is correlated with the US dollar trading higher. 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 mainly lower with the Nikkei and Shanghai exchanges closing higher and the rest of Asia closing lower. As of this writing Europe is trading lower with the exception London that is trading fractionally higher.
Possible challenges to traders today is the following
1. Treasury Secretary Lew speaks at 10 AM EST. This is major.
2. FOMC Member Bullard speaks at 11:30 AM EST. This is not major.
3. FOMC Member Dudley speaks at 1 PM EST. This is not major.
Yesterday we said our bias was neutral as Europe had a bank holiday and there was no major economic news to speak of. Additionally we felt that after the strong move on Friday, the Smart Money wanted to take money off the table. The net result being that the Dow fell 19 points. Today our bias is to the downside as the markets are currently correlated as such. Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday there was no major economic news to drive the markets in any direction and as such our bias was neutral. European banks were closed for a holiday and typically when this happens the markets are either flat or to the downside as there's nothing to propel it forward. Today we have a number of people speaking but the major one is Secretary Lew who will be addressing the Senate Finance Committee, so that could be a factor. Other than that there's no major economic news to speak of.
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 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:
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 July crude dropped to a low of 95.50 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.
- 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.