Good Morning Traders,
As of this writing 4:50 AM EST, here’s what we see:
US Dollar –Up at 81.720 the US Dollar is up 198 ticks and is trading at 81.720.
Energies – June Oil is up at 91.02.
Financials – The June 30 year bond is down 2 ticks and is trading at 149.02
Indices – The June S&P 500 emini ES contract is up at 1581.25 and is up 16 ticks.
Gold – The June gold contract is trading up at 1454.5 and is up 83 ticks from its close.
Initial Conclusion: This is not a correlated market. The dollar is up+ and oil is up+ which is not 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 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 closed mixed with half the exchanges closing higher and the other half lower. As of this writing half of Europe is trading higher and the other half lower.
Possible challenges to traders today is the following
1. Challenger Gray Job Cuts are out at 7:30 AM EST. This is major.
2. ECB Minimum Bid Rate is out at 7:45 AM EST. This is major.
3. ECB Press conference to start at 8:30 AM EST. This is major.
4. Unemployment Claims are out at 8:30 AM EST. This is major.
5. Trade Balance is out at 8:30 AM EST. This is major.
6. Preliminary Non Farm Productivity is out at 8:30 AM EST. This is not major.
7. Preliminary Labor Costs are out at 8:30 AM EST. This is not major.
8. Natural Gas Supplies are out at 10:30 AM EST. This will move the nat gas market.
Well the FOMC meeting came and went and as we suspected the Fed did not raise the FFR. Today the ECB will decide on their Minimum Bid Rate, which is the equivalent of our FFR. The question isn't whether or not the ECB will raise that rate, as we suspect they won't but rather what will they say at the press conference that follows. Some of you may recall that a couple of months ago the ECB held a press conference and based upon what was said the USD reversed course went up dramatically in a very short period of time. When that happened it drove the US markets down. This is market correlation in action as when the dollar goes higher the markets are sure to go lower and they did. So we need to be mindful on what Mario Draghi will say at this conference. The ECB will report the Minimum Bid Rate at 7:45 AM EST and the press conference will start at 8:30 AM EST.
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.
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 advancing. 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 June crude dropped to a low of 90.65 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 advancing. 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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