As of this writing 5:20 AM EST, here’s what we see:
US Dollar –Down at 82.030 the US Dollar is down 252 ticks and is trading at 82.030.
Energies – June Oil is down at 93.70.
Financials – The June 30 year bond is down 4 ticks and is trading at 149.02
Indices – The June S&P 500 emini ES contract is down at 1589.75 and is down 10 ticks.
Gold – The June gold contract is trading up at 1475.90 and is up 83 ticks from its close.
Initial Conclusion: This is not a correlated market. The dollar is down- and oil is down- 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 down and the US dollar is trading lower which is not 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.
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. 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. Average Hourly Earnings are out at 8:30 AM EST. This is major.
4. ISM Non-Manufacturing PMI is out at 10 AM EST. This is major. 5. Factory Orders are out at 10 AM EST. This is major. 6. FOMC Member Tarullo speaks at 12:30 PM EST.
Yesterday we said our bias is neutral which means the markets can go in any direction. The net result? The Dow closed up 131 points. What I see is a market that cannot make up it's mind in terms of direction. Asia closed mixed and currently Europe is doing the same. We have the monthly Jobs Report that can serve to drive the markets in any direction today. Hence our bias is neutral, as the markets today can go anywhere. Could this change? Of Course. Remember anything can happen in a volatile market.
Today we have the all important Jobs Report which will show if the US economy is gaining traction or becoming stale. Yesterday we had a slew of economic reports that were good. Challenger Job Cuts came in much less than expected, Unemployment Claims came in 324K vs 346 expected, Non-Farm Productivity was up and even the ECB reduced the minimum bid rate by 25 points. Hence the Dow regained 131 points which made up for Wednesday's loss. Now the call for today's job's numbers is a gain of 146,000 with the unemployment rate remaining at 7.6%. Of course, if this number remains the same the pundits and analysts will say "see, there's nothing wrong with the economy" or "people have given up searching for work." These are the most ridiculous things I've ever heard of. No one is unemployed because they want to be. Case-in-point right next door to me are two youngsters; one is 25 and the other 23. They both have 4 year degrees and one is pursuing a Masters. Neither one of these people are unemployed because they want to be. Both graduated college with the intent of finding work, yet neither one of them has ever held a job. Why? Because they've given up looking? No. They have no practical experience. I'm sure you all know people like this or have heard similar stories. One thing is for certain, this Jobs Report will bear testament to the sequester being a DC folly. We will know if the sequester will serve to slow down economic growth in the US.
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 lower and the US Dollar is declining. 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 90.25 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 90.00 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 lower 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.