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 26, 2013
Good Morning Traders,
As
of this writing 5:05 AM EST, here’s what we see:
US Dollar –Down at 81.750 the US Dollar is down 27 ticks and is trading at 81.750.
Energies – April Oil is down at 92.45.
Financials – The 30 year bond is up 11 ticks and is trading at
145.19.
Indices – The March S&P 500 emini ES contract is up at 1492.25 and is up 20 ticks.
Indices – The March S&P 500 emini ES contract is up at 1492.25 and is up 20 ticks.
Gold – The April
gold contract is trading up at 1597.60 even and is up 110 ticks.
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 higher. 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 lower. As of this writing all of Europe is trading lower.
Possible challenges to traders today is the following:
- S&P Home Price Index is out at 9 AM EST. This is major.
- HPI is out at 9 AM EST. This is major
- CB Consumer Confidence is out at 10 AM EST. This is major.
- Chairman Bernanke Testifies at 10 AM EST. This is major.
- New Home Sales are out at 10 AM EST. This is major.
- Richmond Manufacturing Index is out at 10 AM EST. This is not considered major.
Yesterday we said our bias was
toward the long side because the markets were completely correlated to
the upside. Initially the markets opened higher to the tune of nearly 100 points. However after 10 AM EST the markets started to move down and stayed down most of the day, closing 216 points lower. What happened? The USD started to climb at 10 AM and Gold moved lower. When the US dollar starts to climb all other markets will fall. This same phenomena occurred two weeks ago when the ECB held their news conference. I suspect the Smart Money decided to take money off the table given that the Dow had climbed 120 points on Friday and the sequester fear finally kicked in. Today we are not dealing with a correlated market. As such our bias is to the short side. Here's why. We are not completely certain that the Smart Money is done taking money off the table. All of Asia closed lower and currently all of Europe is trading lower. Additionally we have the added impact of Ben Bernanke testifying before Congress. This alone can making trading erratic.
Could
this change? Of course.
Remember anything can happen in a volatile market.
I've created a video on what happened yesterday. It can be viewed here:
The great thing about market correlation is that it gives you an insight as to what the market fundamentals are. Now you might ask yourself "why is that important"? It's important because markets generally tend to lean towards those fundamentals regardless of what news is being reported. Are there exceptions? Of course. Look what happened on Wednesday, the markets were poised to go higher but didn't. Mid-morning after this newsletter was published, the markets changed direction abruptly. But as a trader if you see that it changed abruptly, take the appropriate action. Remember that as traders, your number one rule is to preserve your trading capital because without it there is no trading.
- Education
- Small Business
- FDA Food Inspections
- Research and Development
- FBI and law enforcement
It
is painfully aware to me that Congress has no intention of doing
anything on this issue. The GOP wants sequestration to happen. They
seem to believe that their number one goal is to starve the government.
What they fail to realize is that we the people are the government.
They don't seem to be mindful of the fact that many innocent government
employees (FBI, Law Enforcement, Meat Inspectors, etc.) will be effected
by the sequester and will wind up on furlough and hence unemployed.
Unemployment will increase and this no doubt will spill over to the
private sector. Does anyone know any employer who wouldn't jump at the
chance to layoff? I don't. Think about this for a moment. It's
illegal for any food retailer to put out meat that isn't inspected. If a
particular type of meat isn't inspected, they can only put meat that is
and has been inspected. What do you think will happen to the prices of
meat that they can legally put out? You guessed it. The price of that
meat will go up. This is one simple example. What about milk, eggs
and any other staple we take for granted? They need to understand that
what they are doing is liken to the person stuck in a dark cave with a
stick of dynamite in one hand and a match in the other; and then they
light the match to see their way forward. Currently Congress isn't even
in session right now and I suspect that they are willing to throw
caution to the wind and see what happens. I would also suggest that this
will change come April 15th. Why April 15th? Because it's tax day?
No. The bill that Obama just recently signed extends the debt ceiling
into May but if Congress can't get a balanced budget by April 15th, they
will forgo their pay. This I have to see. Of course Speaker Boehner
has no problem blaming the President but fails to mention that
legislation comes out of the House of Representatives and currently
there is no bill on the floor to vote on. As an update to this the Senate will be voting on a bill to balance the sequester spending cuts with revenue increases but the GOP will hear none of it. Speaker Boehner publicly stated yesterday "they've already had their revenue increase."
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
Additionally Norman puts out a weekly 4 minute drill for traders
that's worth looking at. If you as a trader are having issues trading, I
would strongly recommend viewing his program and the 4 minute drill for
traders. Here's one worthy of note:
Future Challenges:
- Sequester spending cuts to commence March 1st.
- Debt Ceiling in the May time frame.
- European Contraction
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 Ben Bernanke is done testifying before Congress today. This should be in the afternoon. 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
