Good Morning Traders,
As of this writing 5:30 AM EST, here’s what we see:
US Dollar –Up at 82.240 the US Dollar is up 45 ticks and is trading at 82.240.
Energies – June Oil is up at 96.32.
Financials – The June 30 year bond is down 2 ticks and is trading at 147.00.
Indices – The June S&P 500 emini ES contract is up at 1609.50 and is up 4 ticks.
Gold – The June gold contract is trading up at 1473.00 and is up 88 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 down and the US dollar is trading lower which is not correlated. Gold is trading higher which is not 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 up with the exception of the Nikkei which was closed for a bank holiday. As of this writing half of Europe is trading lower with the exception of London which again is closed for a bank holiday.
Possible challenges to traders today is the following
1. No major economic news.
2. Lack of economic news.
3. Loan Officer Survey. This is not major news.
On Friday we said our bias is neutral which means the markets can go in any direction. The net result? The Dow closed up 142 points and hit an all time high exceeding 15000. Today the markets aren't correlated however our bias is to the upside. Why? The Bonds are trading lower which is bullish for the markets, Gold is trading higher and Crude is trading higher. Asia closed higher and currently Europe is trading lower. Could this change? Of Course. Remember anything can happen in a volatile market.
Jobs Friday came and went, apparently the US economy created 165,000 net new jobs versus 146,000 expected. Whereas this is good news as I look behind the report it leads me to wonder. At the same time Wall Street was popping the champagne cork over this report, Non-Manufacturing PMI came in at 53.1 versus 54.1 expected. Factory Orders dropped to -4% versus -2.8% expected. So I have to wonder where all these jobs came from given the fact that the American worker lost 2 percent as the payroll tax holiday is over. Weekly income rose 4 cents an hour and in the past 12 months has only risen 1.9%, this is not enough to even keep up with inflation. Another aspect of this report is the long term unemployed are not being counted. When you factor that in the real unemployment rate is 13.9% versus the official rate of 7.5%. In order to achieve true prosperity in the United States we need to create 250,000 net new jobs a month for an extended period of time. I just wish the folks in DC spent more time concerning themselves with economic growth versus the social issues they keep on debating about.
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 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. On Friday June crude dropped to a low of 93.59 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 92.00 a barrel and resistance at 98. 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.