Good Morning Traders,
As of this writing 4:30 AM EST, here’s what we see:
US Dollar –Down at 82.885 the US Dollar is Down 141 ticks and is trading at 82.885.
Energies – June Oil is up at 91.44.
Financials – The June 30 year bond is down 3 ticks and is trading at 148.03.
Indices – The June S&P 500 emini ES contract is up at 1574.75 and is up 3 ticks.
Gold – The June gold contract is trading up at 1443.80 and is up 201 ticks from its close.
Initial Conclusion: This is a correlated market to the upside. The dollar is down- and oil is up+ which is normal and 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 lower which is correlated. Gold is trading higher which is 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.
With the exception of the Shanghai exchange, all of Asia closed higher. As of this writing all of Europe is trading lower.
Possible challenges to traders today is the following
1. Unemployment Claims are out at 8:30 AM EST. This is major.
2. Treasury Secretary Lew speaks at 10 AM EST. This is major.
3. Natural Gas Storage is out at 10:30 AM EST. This will move the Nat Gas market.
Yesterday we said our bias was to the upside as the markets were correlated as such. However we also stated on both this newsletter and our Market Bias video that this could change. So what happened? Core Durable Goods and Durable Goods came in lower than expected and this was enough to drive the markets lower. Besides that the markets weren't too thrilled with the Apple report that came out Tuesday evening, despite the fact that they raised dividends by 15 percent. This served to drive the Dow down 43 points. Today our bias is to the upside because the markets are correlated as such. Could this change? Of Course. Remember anything can happen in a volatile market.
Is it me? We're about 8 weeks into the sequester and the only thing I'm seeing is not too stellar economic reports. I recently wrote an article concerning this subject that's listed below. This is a follow-up to that article. This week we had:
Tuesday - 4/23 - Flash Manufacturing Index - Down 52.0 vs 53.8 expected
- Richmond MFG Index - Down -6 vs +3 expected
Weds - 4/24- Core Durable Goods - Down -1.4% vs +0.5 expected
- Durable Goods Orders - Down -5.7% vs -2.9% expected
The only bright spot this week was New Home Sales which came in better than expected but sales of new homes are lagging indicators, meaning that those numbers were baked in before the sequester started. It seems to me that since this sequester started in the beginning of March we haven't had good economic reports. Want proof? We create 88,000 net new jobs yet more than double that is expected. I've been saying for awhile that this sequester business will have an adverse effect on the US economy but that will be slow in coming. We'll have to monitor the Unemployment Claims as they come in and also the monthly Jobs Report due Friday, May 3rd.
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.
On Friday, April 5th I had the opportunity to interview Carl Weiss from Algo Futures. We talked at length about his thoughts on the future of the markets and new and upcoming endeavors. Ultimately this is the story of an American entrepreneur and what he had to go thru to create a solution that can be used by any trader. If any reader wants to know and is curious about what it takes to be self-made in America, then you need to listen to this. Additionally our friends at TradersLog.com have graciously published my article on this subject. It can be viewed at:
My interview with Carl can be viewed at:
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 higher and the US Dollar is declining. 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 June crude dropped to a low of 89.35 a barrel and held. We'll have to monitor and see if crude either goes lower or holds at the present level. It would appear at the present time that crude has support at 86.00 a barrel and resistance at 92. 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 - ongoing.
- Debt Ceiling in the August time frame.
- European Contraction - happening now
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 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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