As of this writing 5:45 AM EST, here’s what we see:
US Dollar –Down at 83.950 the US Dollar is down 509 ticks and is trading at 83.950.
Energies – July Oil is down at 92.85.
Financials – The June 30 year bond is up 1 tick and is trading at 143.20.
Indices – The June S&P 500 emini ES contract is down at 1637.25 and is down 73 ticks.
Gold – The June gold contract is trading up at 1385.20 and is up 181 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 up and the US dollar is trading higher which is correlated. Gold is trading higher which is correlated with the US dollar trading lower. 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 closing lower. As of this writing Europe is trading lower.
Possible challenges to traders today is the following
1. FOMC Member Bullard speak at 6:05 AM EST. This is not major.
2. Unemployment Claims are out at 8:30 AM EST. This is major.
3. Flash Manufacturing PMI is out at 9 AM EST. This is major.
4. HPI is out at 9 AM EST. This is major.
5. New Home Sales are out at 10 AM EST. This is major.
6. Natural Gas Storage is out at 10:30 AM EST. This will move the Nat Gas market.
Yesterday we said our bias was neutral as there were far too many variables. As such the Dow fell by 81 points. Today we are not dealing with a correlated market. All of Asia closed lower and as of this writing Europe is trading lower. It appears as though the fear factor is returning to Gold today as it's trading higher. Therefore our bias is to the downside today. Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday we said our bias was neutral as there were too many variables that could drive teh markets in any direction. Whereas teh markets opened higher and appeared to be making headway, by the end of the day the markets fell based on Ben Bernanke's testimony before Congress. Having watched some of it live, it was quite apparent that the folks in DC don't really have a clue as to how the economy works. One of them suggested that because low interest rates have been in place for an extended period of time and the economy hasn't grown, maybe it's time to raise rates!!! I've never heard of a more ridiculous notion. The reason why the economy isn't growing and jobs aren't being created is because of what the folks in DC are doing with Budget Ceilings, Fiscal Cliffs, Sequesters and Obama care all making for a very confusing outlook. The only reason why this economy didn't fall back into a recession is because of low interest rates. In any case at what point Bernanke (being pressured by a Congressman) suggested that QE3 could start to slow down as early as September. That's all it took. The Dow went from a gain of 154 points to a loss of 81. Today we have a boatload of economic news which could drive the markets in any direction.
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. Yesterday July crude dropped to a low of 94.01 a barrel and held. Currently is trading at around the 93.00 a barrel mark and was actually lower this morning. 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.