As of this writing 4:50 AM EST, here’s what we see:
US Dollar –Up at 84.080 the US Dollar is Up 358 ticks and is trading at 84.080.
Energies – June Oil is down at 95.24.
Financials – The June 30 year bond is down 3 ticks and is trading at 145.11.
Indices – The June S&P 500 emini ES contract is up at 1650.00 and is up 8 ticks.
Gold – The June gold contract is trading down at 1375.11 and is down 118 ticks from its close.
Initial Conclusion: This is not a correlated market. The dollar is up+ and oil is down- which is normal but 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 lower which is 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 the Aussie, Sensex and Singapore exchanges closing lower. The rest of Asia closed higher. As of this writing Europe is trading lower.
Possible challenges to traders today is the following
1. Preliminary UOM Consumer Sentiment is out at 9:55 AM EST. This is major.
2. Preliminary UOM Inflation Expectations is out at 9:55 AM EST. This is major.
3. Conference Board Leading Index is out at 10 AM EST. This is major.
4. Chairman Bernanke Speaks at 11 AM EST. This is major. Correction: Bernanke will be speaking on Saturday, not today....
Yesterday we said our bias was neutral because the markets were correlated to the downside and we felt the market could move in any direction with the number of reports involved. The net result being that the Dow dropped 43 points. Today we are not dealing with a correlated market however our bias is to the upside today. Why? The Bonds are trading lower which is always bullish for the indices. Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday we had 8 economic reports, none of which were really good. Every report was negative except for Building Permits which came in higher. Mind you that the Building Permits are for existing homes, in other words you have a major project in your home. Unemployment Claims came in far higher than expected. Finally the markets didn't advance on negative news, which is what you should expect. Today we have Ben Bernanke speaking and as we have no idea what he's going to say, you should be mindful of that if trading today. Last Friday he spoke and the market advanced but as usual 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 Wednesday, May 1st I had the opportunity to interview Markus Heitkoetter. Markus is the CEO of Rockwell Trading and is living proof that anyone with the right mindset, desire and tenacity can be a successful trader. He offers a 296 page eBook that can be viewed on the Rockwell Trading website. It's entitled "The Complete Guide to Day Trading" I recall when Markus started Rockwell years ago and was always impressed with his focus on coaching and paying attention to detail. Once again our friends at TradersLog have agreed to publish the article and it can be viewed at: http://www.traderslog.com/interview-with-markus-heitkoetter/
The video 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 advancing. 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. Yesterday June crude dropped to a low of 93.24 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 lower and the US Dollar is advancing. This is 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.