As of this writing 5:15 AM EST, here’s what we see:
US Dollar –Down at 83.055 the US Dollar is down 37 ticks and is trading at 83.055
Energies – May Oil is down at 96.84.
Financials – The June 30 year bond is up 2 ticks and is trading at 144.16.
Indices – The June S&P 500 emini ES contract is up at 1567.25 and is up 11 ticks.
Gold – The June gold contract is trading down at 1569.30 and is down 64 ticks from its close.
Quick Note: Unless otherwise shown the above contract months are now June.
Initial 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 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 with the exception of the Nikkei and Singapore closed lower. As of this writing all of Europe is trading lower.
Possible challenges to traders today is the following
1. ADP Non-Farm Payroll is out at 8:15 AM EST. This is major.
2. ISM Non-Manufacturing PMI is out at 10 AM EST. This is major.
3. Crude Oil Inventories are out at 10:30 AM EST. This will move the crude markets.
Yesterday we said our bias was to the upside because the markets were nearly correlated and Europe was back after a 4 day weekend. The net result being that the Dow closed 89 points higher. Today the markets aren't correlated to either direction therefore our bias is neutral which means it can be driven in any direction today. We have the ADP Non-Farm Payroll report out at 8:15 AM EST and this alone can set the tone for the trading day. Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday we said our bias was to the long side and the Dow closed up 89 points. So what happened? Vehicle sales came in better than expected. Ford came in up 5.7% in March over the same period last year, Chrysler came in 5.0% higher and GM came in 6.4% higher. Mind you that this was with a payroll tax increase that started in January. To lend credence to this Japan's Nikkei index closed 359 points higher. Today we have the ADP Non-Farm payroll report and this is sure to be a market mover. I believe that it will set the tone for the trading session today. As a trader I would be mindful of this report and watch the indices carefully.
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. 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:
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.
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 crude dropped to a low of 95.91 a barrel and held. We'll have to monitor and see if crude either goes lower or holds at the present level. It seems that at the present time crude's support is at 93.00 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.
- 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 declining. This is not 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 10:30 AM when the crude inventories 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 blogs.
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