As of this writing 5:30 AM EST, here’s what we see:
US Dollar –Up at 82.845 the US Dollar is up 50 ticks and is trading at 82.845
Energies – May Oil is down at 93.16.
Financials – The June 30 year bond is down 4 ticks and is trading at 146.07.
Indices – The June S&P 500 emini ES contract is down at 1551.50 and is down 12 ticks.
Gold – The June gold contract is trading up at 1555.30 and is up 29 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 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 up 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 with the exception of the Nikkei closed lower. As of this writing all of Europe is trading lower.
Possible challenges to traders today is the following
1. Non-Farm Employment Change is out at 8:30 AM EST. This is major.
2. Unemployment Rate is out at 8:30 AM EST. This is major.
3. Trade Balance is out at 8:30 AM EST. This is major.
4. Average Hourly Earnings are out at 8:30 AM EST. This is major.
5. Consumer Credit is out at 3 PM EST. This is not major.
Yesterday we said our bias was neutral because the markets weren't correlated. We also pointed out that the Challenger-Gray report at 7:30 AM EST and Unemployment Claims would set the tone for the trading day. Unfortunately neither was not a stellar report and as such the zig zagged between positive and negative territory all day to close 56 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. Could this change? Of Course. Remember anything can happen in a volatile market.
Today is Jobs Friday and for those of you who've been with us awhile know, I don't trade Jobs Friday as the markets historically speaking have never shown any sense of normalcy on this day. What I'm curious to see is if whether or not the sequester cuts will have any impact on the jobs report and therefore the trading day ahead. Last month it had no impact as the sequester had just been signed into law. Economists are expecting a net gain of 198,000 new jobs. Anything below this figure will not be viewed in a positive light. The Unemployment Rate should hold at 7.7 percent but we'll have to monitor and see. Yesterday, the Unemployment Claims came in 32,000 more than expected which doesn't bode well for a stellar report today, but we'll have to monitor and see. What is known is that come next week a fierce budget battle will ensue in DC as Obama's budget will be released.
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 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 crude dropped to a low of 92.18 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 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.
- Budget Battle to Start April 10th.
- 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 10 AM when 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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