This newsletter provides free market direction trading insights that are derived from our seasoned and unique, inter-market analysis. We hope that this information will provide both the novice and seasoned trader with valuable assistance. Our approach is to harvest clues clues from the Market's “tea leaves” as to what the market is doing or is likely to do.
February 4, 2013
Good
Morning Traders,
As
of this writing 4:35 AM EST, here’s what we see:
US Dollar –Up at 79.400 The US Dollar is up 265 ticks and is trading at 79.400.
Energies – March Oil is down at 97.30.
Financials – The 30 year bond is down 21 ticks and is trading at
142.06.
Indices – The March S&P 500 emini ES contract is up at 1507.75 and is up 4 ticks.
Indices – The March S&P 500 emini ES contract is up at 1507.75 and is up 4 ticks.
Gold – The February
gold contract is trading down at 1665.80 and is down 48 ticks.
Conclusion
This is not a correlated market. The dollar is up+ and oil is down-
which is normal but the 30 year bond is trading down which does not correlate with
the US dollar trading up. 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 fractionally but the US dollar
is trading higher. Gold is trading down which correlates 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.
With the exception of the Hang Seng Index the rest of Asia closing lower. As of this writing all of Europe is trading lower.
Possible challenges to traders today is the following:
- Factory Orders are out at 10 AM EST. This is not considered major.
- Lack of major economic news for the US market.
On Friday we said our bias was towards the long side with the net result being that the Dow closed 149 points higher and hit the 14,000 mark for the first time in over 5 years. It only goes to show you that anything can happen in a volatile market. Today market correlation is calling for a lower open and our bias is toward the short side. Here's why. Historically speaking whenever the market (any market) hits a new high not seen in quite some time, The Smart Money will take money off the table. This is liken to what happened in calendar year 2000 when the Nasdaq hit a high of over 5,000. The Smart Money (aka institutionals) immediately took money off the table. Am I saying that the Smart Money will do this today? I don't know if they'll do this today but the odds are and history says that at some point they will. If not today then probably sometime this week. With the exception of the Hang Seng (which closed lower), the rest of Asia closed higher. As of this writing all of Europe is trading lower. The missing ingredients are the bonds and indices. If the bonds were trading higher and the indices were trading lower I would say this is completely correlated market. Bottom line, this is an uncorrelated market. Could this change? Of course. Remember anything can happen in a volatile market.
On Friday the Jobs Report came in at less than expected and the unemployment rate actually rose one tenth of 1 percent. The official number now stands at 7.9 percent. So you may be asking how can that be? How could the market rise that much even though the Jobs numbers weren't that great? The answer is market correlation. We said our bias was towards the long side because the markets were nearly correlated and the only thing missing was a higher crude number. Crude was down fractionally Friday morning, so our bias was to the long side. Today we have a different situation. The indices are only up fractionally and I would never underestimate the power of the USD to move markets. The great thing about market correlation is that it gives you a clue as to what to look forward to. Today we have no major economic news to speak of and therefore have nothing to drive the markets higher.
On the political front it appears as though the Democratic controlled Senate has decided to pass the debt ceiling extension that the GOP dominated House of Representatives passed last week. It now has to go to the President for passage. The caveat here is that Congress must approve a blueprint for the budget by April 15th or they will forfeit their pay. This I have to see. Whereas the debt ceiling talks have been put off until May 19th, sequester spending cuts will occur in the early March time frame, as scheduled. It will be interesting to see how DC will react to this. In all likelihood they'll probably put it off until the debt ceiling issue comes into play but we'll have to see. At some point this month, this will be revisited as Congress must come to some decision prior to March 1st. March 1st marks the day that automatic spending cuts come into play and the DC folks have to decide what they're going to do about it. If you're wondering what this has to do with markets; I would say to you everything. Look at what happened during the recent fiscal cliff crisis. If you're wondering why we haven't had correlated markets since the election, look no further. The markets do not like uncertainty when it comes to fiscal issues and anything that reeks of uncertainty is not viewed in a positive light. Will the markets survive? of course. But I suspect that the GOP wants to extend for the very purpose of keeping uncertainty and therefore fear alive. They know the markets are fickle and the longer the issue remains alive the more uncertainty will be created.
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 market correlation is calling for a lower open and our bias is towards the short side. Could this change? Of course. We could have a Factory Orders report that could in fact drive the markets higher or lower. In a volatile market anything can happen. We'll have to monitor and see. For awhile now we've promised a video on how a trader can use Market Correlation in tandem with their daily trading. A good friend of Market Tea Leaves: Carl Weiss of Sceeto and I produced a video on December 22nd that shows this. Here it is:
http://youtu.be/Ysx-nOgAtkI
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.
Here's a short video on how a trader can use market correlation:
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. Friday's crude number nearly hit the 98.00 a barrel
mark. So it would seem that at the present time crude's support is at
92.00 with resistance at 98.00 a barrel. 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:
- Sequester spending cuts to commence around early March
- Debt Ceiling also around the early March (could be May if POTUS signs) time frame.
Future Challenges:
- Sequester spending cuts to commence around early March
- Debt Ceiling also around the early March (could be May if POTUS signs) time frame.
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 EST when the economic news is
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.
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.
To View previous articles of Market Tea Leaves:
www.benzinga.com/author/market-tea-leaves
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To View previous articles of Market Tea Leaves:
www.benzinga.com/author/market-tea-leaves
To Subscribe Click Here:
http://eepurl.com/uoQzH
