Good Morning Traders,
As of this writing 5:15 AM EST, here’s what we see:
US Dollar –Down at 80.715, the Dec US Dollar is down 29 ticks and is trading at 80.715.
Energies – January Oil is down at 93.87.
Financials – The December 30 year bond is down 3 ticks and trading at 132.12.
Indices – The December S&P 500 emini ES contract is up 2 ticks and trading at 1785.75.
Gold – The December gold contract is trading down at 1271.10 and is down 24 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 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 up and the US dollar is trading lower which is correlated. Gold is trading lower which is not 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 mainly lower with the exception of the Hang Seng and Shanghai exchanges which closed higher. As of this writing all of Europe is trading lower.
Possible challenges to traders today is the following:
1. Core CPI m/m is out at 8:30 AM EST. This is major
2. Core Retail Sales m/m is out at 8:30 AM EST. This is major.
3. Retail Sales m/m is out at 8:30 AM EST. This is major.
4. CPI m/m is out at 8:30 AM EST. This is major.
5. Existing Home Sales is out at 10 AM EST. This is major.
6. Business Inventories m/m is out at 10 AM EST. This is not major.
7. FOMC Member Dudley Speaks at 10 AM EST. This is major.
8. Crude Oil Inventories are out at 10:30 AM EST. This could move the oil market.
9. FOMC Member Bullard Speaks at 12:15 PM EST. This is major.
10. FOMC Meeting Minutes are out at 2 PM EST. This is major.
Yesterday the Swiss Franc made it's move at around 10 AM EST. The USD hit a high at around that time and proceeded to drop, the Swiss Franc rose at the around the same time. 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 ticks on this trade.
Charts Courtesy of Trend Following Trades
|Swiss Franc - 12/13 - 11/19/13|
|USD - 12/13 - 11/19/13|
Yesterday we said our bias was to the upside as all the instruments we track were mainly showing correlation. However we also stated that the indices were not showing follow thru so be mindful of this if trading. The Dow dropped 9 points and the other indices lost ground. Today we aren't dealing with a correlated market and have 10 economic reports, most of which are major. Hence our bias is neutral which means the markets could go in any direction. Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday the Dow did gain ground early in the session and breached the proverbially 16,000 level however it did not maintain it. Yesterday there was no compelling reason to advance as we did not have any strong economic news to move the markets nor did any of the speakers lend confidence to the markets. Obama spoke at 3 PM but all he did was to speak on the ACA and quite frankly this is getting old. It seems to me that all teh folks in DC can do is to defend their positions; whether it's healthcare or not tapering everyone seems to be intent on defending themselves. This defensive stance isn't helping the markets or the economy for that matter. It's nearly 5 years and we're still wondering where all the millions of "green jobs" are. We are certainly no closer to it. Today we will have no concern over the lack of economic news as we have plenty to go around with 10 economic reports, most of which are major.
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:
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:
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.
Recently I had the opportunity to interview Mr. Michel Julien of Trader Crude Oil. Michel has a very interesting proposition. Michel is involved in crude oil trading and has been so for a number of years. His philosophy is to master one commodity and to become an expert at it. He is opening his trading room on November 4th and those that signup for it will have the chance to shadow his trades. The best news of all? His trading room is offered on a contributory basis, in other words you decide to pay what you think it's worth on a contributory basis. No spending hundreds of dollars a month only to find that it wasn't worth what you thought. This is an extremely unique value proposition and could potentially be a game-changer in the field of online subscription services. To view the article I've written on Michel, go to:
To watch the video interview I did with Michel:
As an update on this, one of the things that Michel also does is to report his wins and losses. This is significant because it shows that above all, he's a trader and has the same concerns all traders have.
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 93.22 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 $93.04 a barrel and resistance at 94.60. 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 - 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.
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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 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.