As of this writing 5:25 AM EST, here’s what we see:
US Dollar –Down at 83.590the US Dollar is down 213 ticks and is trading at 83.590.
Energies – July Oil is down at 94.11.
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 1649.00 and is down 4 ticks.
Gold – The June gold contract is trading down at 1387.80 and is down 40 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 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.
Asia closing mixed with half the indices closing lower and the other half closing higher. The Nikkei rebounded from its loss to close in positive territory. As of this writing Europe is trading mixed with the FTSE and DAX trading lower and the rest of Europe trading higher.
Possible challenges to traders today is the following
1. Core Durable Goods Orders are out at 8:30 AM EST. This is major.
2. Durable Goods are out at 8:30 AM EST. This is major.
Yesterday we said our bias was to the downside as the markets were correlated as such. Additionally all markets worldwide fell. As such the Dow dropped 12 points which wasn't as bad as the triple and quadruple digit losses suffered by Asia and Europe. Today we are not dealing with a correlated market. Asia closed mixed and as of this writing Europe is trading mixed. Therefore our bias is to the downside today. Could this change? Of Course. Remember anything can happen in a volatile market.
On Wednesday after Bernanke made his comments all markets worldwide suffered losses. Some to the tune of quadruple losses as witnessed in Japan. Yesterday this of course had an effect on the US exchanges as they too dropped. However the US losses very minor compared to other regions of the world. To anyone who thinks that markets aren't correlated, you need to think again. We are all connected in one way, shape or form. The US had pretty good economic reports and at first glance this would seem positive for the markets. Unemployment Claims, New Home Sales and HPI were all good but at the end of the day market fundamentals overrode all of that. That's the funny thing about Market Correlation, at the end of the day it's usually correct. Today I would expect a low volume, I can't wait to get out of Dodge kind of day. After lunchtime, I would expect traders to be heading for doors looking to start the Memorial Day Holiday a bit sooner. This is traditionally the start of the summer trading and the question is will we see a low volume, chopfest type of season or a more robust one? The last couple of years have been robust so 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 downside. 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:
http://youtu.be/i-mIumI6ptU
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 92.21 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.
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:
http://www.investing.com/analysis/rockwell-trading-ceo-heitkoetter:-a-simple,-timeless-trading-strategy-166093 http://www.barchart.com/headlines/story/10110400/leadership-or-lack-thereof
http://www.barchart.com/headlines/story/9971005/german-factory-orders-up-us-down
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.
