Good Morning Traders,
As of this writing 6:00 AM EST, here’s what we see:
US Dollar –Down at 82.245 the US Dollar is Down 326 ticks and is trading at 82.245.
Energies – June Oil is up at 93.32.
Financials – The June 30 year bond is down 1 tick and is trading at 148.27.
Indices – The June S&P 500 emini ES contract is up at 1580.50 and is up 16 ticks.
Gold – The June gold contract is trading up at 1469.90 and is up 163 ticks from its close.
Initial Conclusion: This is a correlated market and it is correlated to the upside. The dollar is down- and oil is up+ which is 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 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.
Whereas Japan and China were closed for a bank holiday, the rest of Asia closed higher. As of this writing all of Europe is trading higher with the exception of the London Exchange.
Possible challenges to traders today is the following
1. Core PCE Price Index is out at 8:30 AM EST. This is not major.
2. Personal Spending is out at 8:30 AM EST. This is not major.
3. Personal Income is out at 8:30 AM EST. This is not major.
4. Pending Home Sales is out at 10 AM EST. This is major.
On Friday we said our bias was to the downside as the markets were correlated as such. The net result? The Dow closed 12 points higher. So what happened? Advance GDP was reported and even though it did not meet expectation (2.5% vs 3.1% expected), the headlines read "US Economy Grows by 2.5%" and that's all anyone saw. Today we have Pending Home Sales out at 10 AM EST and this will be the market mover today. Today our bias is to the upside as the markets are correlated as such. Could this change? Of Course. Remember anything can happen in a volatile market.
On Friday, Advance GDP was reported and it came in at 2.5% vs 3.1% expected. Later on in the day we learned that the House of Representatives approved a bill ending furloughs for Air Traffic Controllers. Why, you ask? Because business travelers are complaining to their elected officials regarding flight delays and the inconvenience thereof. President Obama is expected to sign the bill, without getting anything in return for it. Again he is offering an olive branch to the GOP. He has got to be the worst negotiator I've ever seen. If my opposition wanted me to do something I would sit down, bargain and negotiate. This is what happens in the business world every day, but then again this "CEO" doesn't have a business background and despite the fact that he's held office for over 1 term now, still hasn't figured out the politics of DC. Of course, this move does nothing for the Head Start program or Medicare patients who are suffering from catastrophic illnesses and had their benefits cut. If he's so concerned over the plight of business travelers why could he not at the very least negotiate aid for Medicare patients? By the same token, we are now hearing that staff members of Congress (you know, the Bozo's you see on Veep) won't be subject to the Affordable Care Act such that they won't be subject to the Health Exchange rules of their state of domicile. So the rules that apply for all of us don't apply for the folks in DC. Tell me this isn't a lack of leadership because as far as I can see, it is.
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. On Friday June crude dropped to a low of 92.14 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 89.00 a barrel and resistance at 95. 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 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 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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