Good Morning Traders,
As of this writing 5:10 AM EST, here’s what we see:
US Dollar –Down at 80.515, the Dec US Dollar is down 123 ticks and is trading at 80.515.
Energies – January Oil is down at 93.49.
Financials – The December 30 year bond is down 10 ticks and trading at 132.13.
Indices – The December S&P 500 emini ES contract is up 7 ticks and trading at 1803.75.
Gold – The December gold contract is trading up at 1250.60 and is up 92 ticks from its close.
Note: The front month for crude is now January "14.
Initial Conclusion: This is not a correlated market. The dollar is down-and oil is down- which is not normal and 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 higher and the US dollar is trading lower which is 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.
Asia traded mixed with half the exchanges trading to the downside and the other half trading higher. As of this writing all of Europe is trading higher.
Possible challenges to traders today is the following:
1. Core Durable Goods Orders m/m is out at 8:30 AM EST. This is major.
2. Unemployment Claims are out at 8:30 AM EST. This is major.
3. Durable Goods Orders m/m are out at 8:30 AM EST. This is major.
4. Chicago PMI is out at 9:45 AM EST. This is major.
5. CB Consumer Confidence is out at 10 AM EST. This is major.
6. Revised UOM Consumer Sentiment is out at 9:55 AM EST. This is not major.
7. Revised UOM Inflation Expectations is out at 9:55 AM EST. This is not major.
8. CB Leading Index m/m is out at 10 AM EST. This is major.
9. Crude Oil Inventories is out at 10:30 AM EST. This could move the crude markets.
10. Natural Gas Storage is out at 12 PM EST. This could move the Nat Gas markets.
Currencies
Yesterday the Swiss Franc made it's move at around 10AM EST after all the economic news was released. The USD fell and the Swiss Franc rose. This was a long opportunity on the Swiss Franc. The key to capitalizing on these trades is to watch the USD movement. The USD rise only lent confirmation to the move. As a trader you could have netted 20-30 plus ticks on this trade.
Charts Courtesy of Trend Following Trades
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| Swiss Franc - 12/13 - 11/26/13 |
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| USD - 12/13 - 11/26/13 |
Bias
Yesterday we said our bias was neutral as we were concerned about the Bonds trading higher. Remember a neutral bias means the markets could go in any direction. The Dow closed flat but the Nasdaq advanced 23 points and closed about the 4000 level. Today we are dealing with a nearly correlated market to the upside with the missing ingredient being crude. If crude were trading higher I would say we have a completely correlated market to the upside, hence our bias is to the upside. Be mindful that we have 10 economic reports today, 6 of which are major. Could this change? Of Course. Remember anything can happen in a volatile market.
In today's commentary I'm not really going to be discussing the markets but rather because we're on the cusp of a major holiday, to discuss Thanksgiving. Every now and then in the US we get a major holiday and tomorrow is one of them. True, things are not as great as we think they should be but we all have a reason to be grateful for something, whatever that happens to be. Maybe it's where we live or the car we drive or the clothes we wear. Whatever the reason. We should think about that every now and then.....
Many of my readers have been asking me to spell out the rules of Market Correlation. Recently Futures Magazine has elected to print a story on the subject matter and I must say I'm proud of the fact that they did as I'm Author of that article. I encourage all viewers to read that piece as it spells out the rules of market correlation and provides charts that show how it works in action. The article is entitled "How to Exploit and Profit from Market Correlation" and can be viewed at:
http://www.futuresmag.com/2013/08/01/how-to-exploit-and-profit-from-market-correlation
As a follow up to the first article on Market Correlation, I've produced a second segment on this subject matter and Futures Magazine has elected to publish it. It can be viewed at:
http://www.futuresmag.com/2013/08/16/how-to-exploit-and-profit-from-market-correlation?ref=hp
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 upside. Could this change? Of course. In a volatile market anything can happen. We'll have to monitor and see.
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. Yesterday January crude dropped to a low of 93.55 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 $93.24 a barrel and resistance at 94.66. 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 - Forthcoming.
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 9 AM EST, 11 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 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.barchart.com/headlines/story/12650453/are-the-markets-rewarding-poor-performance
http://www.traderplanet.com/commentaries/view/164874-trader-tips-the-case-for-fundamental-analysis/
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 editions.
Nick Mastrandrea is the author of Market Tea Leaves. Market Tea Leaves is a free, daily newsletter that discuses and teaches market correlation. Market Tea Leaves is published daily, pre-market in the United States and can be viewed at www.markettealeaves.com Interested in Market Correlation? Want to learn more? Signup and receive Market Tea Leaves each day prior to market open. As a subscriber, you’ll also receive our daily Market Bias video that is only available to subscribers.
