Good Morning Traders,
As of this writing 5:10 AM EST, here’s what we see:
US Dollar –Up at 80.215, the US Dollar is up 1 tick and is trading at 80.215.
Energies – January Oil is down at 97.34.
Financials – The March 30 year bond is down 2 ticks and trading at 129.24.
Indices – The March S&P 500 emini ES contract is up 22 ticks and trading at 1778.50.
Gold – The February gold contract is trading up at 1231.90 and is up 12 ticks from its close. Note: The front month for crude is now January "14.
The front month for Gold is February'14.
The front month for the 30 Year Bond is now March.
The Front month for the USD is now March.
Initial Conclusion: This is a not 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 higher and the US dollar is trading higher which is not correlated. Gold is trading higher which is not 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 traded mainly higher with the exception of the Shanghai and Singapore exchanges which traded down fractionally. As of this writing Europe is trading higher.
Possible challenges to traders today is the following:
1. Building Permits is out at 8:30 AM EST. This is major.
2. Housing Starts are out at 8:30 AM EST. This is major.
3. Flash Services PMI is out at 10 AM EST. This is not major.
4. Crude Oil Inventories are out at 10:30 AM EST. This could move the crude markets.
5. FOMC Economic Projections are out at 2 PM EST. This is major.
6. FOMC Statement is out at 2 PM EST.
7. Federal Funds Rate is out at 2 PM EST. This is major.
8. FOMC Press Conference starts at 2:30 PM EST.
Currencies
Yesterday the Swiss Franc made it's move at around 10:30 AM EST after all the economic news was released. Look at the charts below and you'll see a pattern for both assets. The USD fell at around that time 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 fall only lent confirmation to the move. As a trader you could have netted about 20-30 ticks on this trade. Please note that the front month for both contracts is March, 2014.
Charts Courtesy of Trend Following Trades
 |
| Swiss Franc - 3/14 - 12/17/13 |
 |
| USD - 3/14 - 12/17/13 |
Bias
Yesterday we said our bias was to the downside as the markets were correlated as such. The Dow dropped 10 points and the other indices fell as well. Ordinarily I would say that the market is poised to go higher except today our bias is neutral as it is an FOMC day and we always maintain a neutral bias on this day. Could this change? Of Course. Remember anything can happen in a volatile market.
Well it looks as though Santa Claus left town (as we said he would) due to a market correlated to the downside. Today is FOMC Day and it will the last FOMC meeting chaired by Ben Bernanke. The question on everyone's mind is will they taper? We've been talking about this for 6 months now ever since the June meeting when the idea of tapering was first discussed. Quite frankly I don't think anyone knows what they'll do but a telltale clue is that they will be conducting a press conference after the announcement is made so this could be very good (no taper) or maybe not (taper). The economy is still tepid at best but recently I heard Bill Gross speaking on Bloomberg Radio stating that there's a 50/50 chance that they would taper. We'll have to see how this all works out...
Each day in this newsletter we provide viewers a snapshot of the Swiss Franc versus the US dollar as a way and means of capitalizing on the inverse relationship between these two assets. Futures Magazine recognized this correlation as well. So much so that they printed a story on it in their December issue. That story can be viewed at:
http://www.futuresmag.com/2013/11/25/correlated-opportunities-in-the-swiss-franc?ref=hpMany 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 downside. 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 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 January crude dropped to a low of 97.02 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 $96.31 a barrel and resistance at 98.27. 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 - Awaiting Senate vote.
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 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.
No comments:
Post a Comment