Wednesday, April 10, 2013

Pre-Market Global Review - 4/10/13 - Obama Budget Due...

Good Morning Traders,
As of this writing 5:30 AM EST, here’s what we see:
US DollarUp at 82.425 the US Dollar is up 11 ticks and is trading at 82.425.      

Energies – May Oil is down at 94.04.
Financials – The June 30 year bond is down 10 ticks and is trading at 146.22
Indices – The June S&P 500 emini ES contract is up at 1567.40 and is up 17 ticks.
Gold – The June gold contract is trading down at 1580.70 and is down 60 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 lower which is 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 Singapore exchange closed higher.  As of this writing all of Europe is trading higher.

Possible challenges to traders today is the following
1.  Crude Oil Inventory is out at 10:30 AM EST.  This will move the oil market.
2.  10 Year Bond Auction starts at 1 PM EST.  
3.  FOMC Meeting Minutes are out at 2 PM EST.  This is major.
4.  Federal Budget Balance is out at 2 PM EST.  This is not considered major.    
Yesterday we said our bias was to the upside because the markets were completely correlated.  The net result?  The Dow closed 60 points higher.  Today we do not have a correlated market but our bias is to the upside.  Why?  The Bonds are trading lower and the indices are higher.  Additionally with the exception of the FOMC minutes due out at 2 PM EST there is no major economic news that could potentially drive the markets lower.  Could this change? Of Course.  Remember anything can happen in a volatile market.
On Monday we wrote about the proposed budget coming out of President Obama office.  It is due today so we'll soon find out which programs he'll cut.  I suspect he's doing this to offer a "dove" to the GOP but I also think he's going to be in for a surprise because if this budget has any stench of "revenue generation" they won't go for it.  So once again, the middle class has to bear the brunt of DC's folly.  I'm wondering when Obama is going to wake up and realize that the GOP are not his friends.  The only thing they wish to do is obstruct and make him look foolish.  They want history to note him as the President who couldn't get anything done and his Presidency as one of gridlock.  If anyone thinks that the GOP is done with obstructing, what do you think will happen when other bills are brought before Congress?  Gun Control?  Immigrant Reform?  Forget it.  Fourteen GOP Senators have already claimed no vote on Gun Control and more than 90% of Americans want it.  
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 to the upside.  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 92.86 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. 

Future Challenges:
- Budget Battle to Start April 10th.
- Debt Ceiling in the May time frame.      

- European Contraction - happening now 

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 10:30 AM when the inventory numbers are released and the markets give us better direction.  Also be mindful that today the FOMC Minutes are out at 2 PM.  This is always a market mover.  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.

To view previous issues of Market Tea Leaves visit our archive.