Tuesday, May 7, 2013

Pre-Market Global Review - 5/7/13 - Will the Dow Retain 15,000?

Good Morning Traders,
As of this writing 6:00 AM EST, here’s what we see:
US DollarDown at 82.375 the US Dollar is down 3 ticks and is trading at 82.375.             
Energies – June Oil is down at 95.56.        
Financials – The June 30 year bond is up 4 ticks and is trading at 146.20     
Indices – The June S&P 500 emini ES contract is up at 1614.50 and is up 4 ticks.  
Gold – The June gold contract is trading down at 1461.40 and is down 66 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 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 down and the US dollar is trading lower which is not correlated.  Gold is trading lower 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. 
All of Asia closed higher.  As of this writing Europe is trading higher.
Possible challenges to traders today is the following            
1.  IBD/TIPP Economic Optimism is out at 10 AM EST.  This is not major.        
2.  Consumer Credit is out at 3 PM EST.  This is not major.      
3.  Treasury Secretary Lew speaks at 4 PM.  After-market.

Yesterday we said our bias was to the upside because with the exception of the USD the markets were correlated as such.  Whereas the Dow closed 5 points lower the NASDAQ and the S&P gained.  Today the markets aren't correlated however our bias is to the upside.  Why?  The USD is trading lower which is bullish for the markets.   Asia closed higher and currently Europe is trading higher.  Could this change? Of Course.  Remember anything can happen in a volatile market.

The question that comes to mind is will the Dow retain/regain the 15,000 level?  Will it exceed it?  This is difficult to say as the Smart Money will have you believe that markets can go up indefinitely with no end in sight.  This is completely unrealistic and the "stuff" the Smart Money fed us during the dot-com boom of the late 1990's.  Back then it seemed as if there was no end in sight.  As a trader you should ask yourself a question.  When you see resistance at a certain level and the market tries 3 three times to exceed that level, but doesn't, what happens?  You guessed it.  The market retreats.  The rule of thumb used to be that in order to be called a rally the market had to advance 3 days in a row.  The term used to be does the market have legs?  Today one day is considered a rally.  My take is if the market wanted to retreat, it would have done so yesterday.  So we're not at the point of tossing the towel in, so to speak.  Time will tell if 15,000 represents the new resistance point for the Dow.  As always, we'll have to monitor and see.

 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 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. On Friday June crude dropped to a low of 94.88 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. 

Future Challenges:
- 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.

Recently Published Articles:      

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.