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 from the Market's “tea leaves” as to what the market is doing or is likely to do.
February 20, 2013
Good
Morning Traders,
As
of this writing 4:25 AM EST, here’s what we see:
US Dollar –Down at 80.425 the US Dollar is down 120 ticks and is trading at 80.425
Energies – April Oil is up at 97.25.
Financials – The 30 year bond is down 5 ticks and is trading at
142.29.
Indices – The March S&P 500 emini ES contract is up at 1529.15 and is up 6 ticks.
Indices – The March S&P 500 emini ES contract is up at 1529.15 and is up 6 ticks.
Gold – The April
gold contract is trading up at 1605.00 and is up 6 ticks.
Conclusion
Finally a correlated market to the upside. The dollar is down- and oil is up+
which is normal and the 30 year bond is trading down which correlates with
the US dollar 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. Gold is trading higher which correlates 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.
All of Asia closed higher. As of this writing all of Europe is trading higher.
Possible challenges to traders today is the following:
- Building Permits are out at 8:30 AM EST. This is major.
- PPI is out at 8:30 AM EST. This is major.
- Core PPI is out at 8:30 AM EST. This is major.
- Housing Starts are out at 8:30 AM EST. This is major.
- FOMC Minutes are out at 2 PM EST. This is major.
Yesterday we said our bias was
toward the long side and despite the fact that the markets weren't correlated. The net result? The Dow closed 54 points higher and hit a fresh 5 year high. Today market correlation is calling for a higher open and our bias is toward the long side. Here's why. Ordinarily my bias on a day like today would be towards the short side because usually the Smart Money likes to take money off the table after hitting a fresh 5 year high. However the Dow closed higher yesterday which lead to Asia closing higher and Europe is currently trading higher. Additionally the markets are completely to the upside which these days is rare. Hence my bias is towards the long side. Now we have major reports coming out this morning and that can change everything and additionally we have the FOMC Meeting minutes this afternoon and that can lead to erratic afternoon trading, but we'll have to see. Could this change? Of course.
Remember anything can happen in a volatile market.
This afternoon we have the release of the FOMC Meeting Minutes. Some pundits and analysts will attempt to decipher those minutes to seek clues as to when the Fed is going to raise interest rates or more notably the FFR (Federal Funds Rate) aka the Overnight Rate. This is the rate of interest that the Federal Reserve charges banks for loans. The banks in turn charge we the consumers a rate that is far higher than what the Fed charges a bank. Has anyone tried to get a loan these days? Then you know what I'm talking about. In any case, this could lead to irrational behavior in the markets this afternoon. Sometimes it's treated as a mini FOMC meeting, even though it is not. Be mindful of this if you're trading in the afternoon and best bet; wait until after the report is released and then decide.
- Education
- Small Business
- FDA Food Inspections
- Research and Development
- FBI and law enforcement
Yesterday Simpson-Bowles came back into the foray by caliming that there was a way for the US Government save trillions of dollars over a ten year period. Problem is, that they weren't too specific on how this could be accomplished. Additionally the GOP came out and formally claimed that they are not in favor of any additional revenues increase aka tax hikes to the high net wealth folks. Speaker of the House Boehner said "they just got an increase last month and now they're coming back for more." What the GOP doesn't seem to understand is that if this issue isn't resolved, more people will lose their jobs. What do you think is going to happen to government employees who work in the departments that are slated to get their budgets cut? They will get laid off. This will increase the Unemployment Rate in this country and will set off a chain reaction that will hit the private sector. Want proof? What about consulting firms that offer services to the government? The last time this happened in 2011, many of those firms were on the cusp of laying people off; they received a reprieve after an agreement was made and held off doing so. They will not be that generous this time around if some agreement isn't made. On another note Senator Marco Rubio (aka water boy) said that an Immigration Bill was DOA (dead on arrival). Wait, I thought he wanted an Immigration Bill? Doesn't he come from a family of immigrants? Struggling hard to make in the United States? I guess not.
This is the new and improved GOP in action. They won't outwardly hold
the country hostage as they did in 2011; they'll set up events such that
it works out that way. So come March 1st they'll just innocently sit
back and say "oh well we have to cut, it's the law you know." I've been
wondering why they're so eager to extend the debt ceiling. They're
waiting for a tsunami of events to occur such that there will be no
other alternative. 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. The Smart Money is loving it because thus far they made
any issues about March 1st or sequester spending cuts. Will the
markets survive? of course. But it also seems to me that the GOP knows
all too well that Congress will only act when it has to. In other
words, they know that DC drags it's feet when it comes to spending cuts
and they've setup events such that it has to happen.
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 higher open and our bias is towards the long side. Could this change? Of course. 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.
Oftentimes we listen to traders talk about problems and issues they are confronted with. One issue that keeps re-surfacing deals with trader psychology. Now I can deal with a market issue, I can deal with a trading issue but I'm not a trading psychologist. A good friend of Market Tea Leaves, Mr. Norman Hallett has been a leader in this field for over 20 years. I've followed his work for over 8 years and I highly recommend it. You can view Norman at:
http://www.thedisciplinedtrader.com/nick
Future Challenges:
- Sequester spending cuts to commence around early March
- Debt Ceiling in the May time frame.
- European Contraction
Crude
oil is trading higher and the US Dollar is declining. 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. Additionally be mindful of the FOMC Meeting minutes to be released at 2 PM EST. 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
