As of this writing 5:00 AM EST, here’s what we see:
US Dollar –Down at 84.080 the US Dollar is Down 307 ticks and is trading at 84.080.
Energies – June Oil is down at 95.69.
Financials – The June 30 year bond is down 6 ticks and is trading at 143.25.
Indices – The June S&P 500 emini ES contract is down at 1662.75 and is down 1 tick.
Gold – The June gold contract is trading down at 1352.00 and is down 127 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 fractionally 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, possibly as follow thru to the US markets on Friday. As of this writing Europe is trading higher.
Possible challenges to traders today is the following
1. FOMC Member Dale speaks at 1 PM EST. This is not major.
2. No Major economic news
3. Lack of economic news.
On Friday we said our bias was to the upside as the Bonds were trading lower which is bullish for the markets and indices. The net result being that the Dow gained 121 points. Today we are not dealing with a correlated market however our bias is neutral. We feel that due to the upmove on Friday, the Smart Money will be looking to take "money off the table". Whereas Asia closed higher and Europe is currently trading higher, European banks have a bank holiday today and this can mean a flat session for the Continent. Could this change? Of Course. Remember anything can happen in a volatile market.
On Friday we said our bias was to the upside as the Bonds were trading lower and that is always bullish for the markets and indices. Why? Traditional logic says that when the markets are lower then escape to the "safety" of bonds. So if the Bonds are lower this is indicative of a market that wants to go higher. UOM Consumer Sentiment came in far greater than expected. 83.7 versus 77.9 expected. The Conference Board Leading Index came in at 0.6% versus 0.3%, which was better than expected. All in all it was a good day for the markets and trading in general. Will this follow thru today? Again 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 neutral. 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 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 94.80 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 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.