As of this writing 5:25 AM EST, here’s what we see:
US Dollar –Up at 79.920, the US Dollar is up 75 ticks and is trading at 79.920. Energies – April Oil is down at 98.72.
Financials – The June 30 year bond is currently is up 9 ticks and trading at 131.24.
Indices – The March S&P 500 emini ES contract is down 11 ticks and trading at 1862.50.
Gold – The April gold contract is trading up at 1356.30 and is up 94 ticks from its close.
Initial Conclusion: This is a nearly correlated market, unfortunately it's correlated to the downside. The dollar is up+ and oil is down- which is 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 lower and the US dollar is trading up which is correlated. Gold is trading higher which is not 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.
All of Asia traded mainly lower. As of this writing all of Europe is trading lower. Please note: whereas the US markets are currently on Daylight Savings Time, this does not occur in Europe until March 30th. Instead of opening at 3 AM EST, for the next 3 weeks Europe doesn't open until an hour later at 4 AM EST.
Possible challenges to traders today is the following:
1. Crude Oil Inventories is out at 10:30 AM EST. This could move the crude market.
2. 10-y Bond Auction starts at 1 PM EST. This is major.
3. Federal Budget Balance is out at 2 PM EST. This could effect afternoon trading.
4. Treasury Sec Lew Speaks at 2 PM EST. This is major.
Currencies
Yesterday the Swiss Franc made it's move at around 10 AM EST after the Jolts Jobs Report came out. Look at the charts below and you'll see a pattern for both assets. The USD hit a high at around that time and fell. In the meantime the Swiss Franc rose. This was a long opportunity on the Swiss Franc. The key to capitalizing on these trades is to watch the USD movement. The USD falling only lent confirmation to the move. As a trader you could have netted about 20-30 ticks on this trade, whereas this may not seem like much understand that each tick on the Swiss Franc is worth $12.50. To expand the chart, right click and open in a new window. Kindly view our special video to determine how to capitalize on these trades. http://youtu.be/lOxBMe09X3Q
As an add-on to the above video, we created a new one entitled How to Trade the Swiss Franc in a Volatile Market. I trust you'll find it interesting and thought provoking. It can be viewed at: http://youtu.be/6cCyR43Qb3Y
Charts Courtesy of Trend Following Trades
++3_11_2014.jpg) |
| Swiss Franc - June, 2014 - 3/11/14 |
 |
| USD - June, 2014 - 3/11/14 |
Bias
Yesterday we said our bias was neutral as the futures weren't giving us any sense of direction. A neutral bias means the markets could go in any direction and it also lends increased volatility as traders don't know which way to turn. As such the Dow dropped 68 points and the other indices lost ground ground as well. Today we are dealing with a nearly correlated market, however it is correlated to the downside. Therfore our bias is to the downside. Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday we said our bias was neutral as the futures didn't give us any sense of direction. We didn't have any major economic reports except the Job Openings which didn't meet expectation. Wholesale Inventories isn't major nor is it a market mover. So what could be causing the malaise? It seems to me that wherever you look today journalists are spreading negative news concerning the markets. Take a look at some of these headlines:
- Seven Signs of a Market Top
- Stop Trading Now before 2014 turns into 1929
- Scary Comparison with 1929
This is borderline ridiculous as this is not the same economy as 1929. We didn't have regulations in 1929 and back then the Federal Reserve was a shadow of what it is today. Does this mean that the markets can't fall? Of course not. What comes up will eventually come down but the markets will go down when they go down and for a good reason. Not a chart of 1929. In 2008 the markets fell for a good reason; the banks and others were so deep into real estate that when that market collapsed it took the financial industry with it. Fortunately we had cooler heads at the Federal Reserve who realized immediately that something had to be done as opposed to 1929. In 1929 the Federal Reserve did nothing to help alleviate the markets or the economy in general. They still believed in a hands-off policy commonly called laissez faire.
Each day in this newsletter we provide viewers a snapshot of the Swiss Franc versus the US dollar as a way and means of capitalizing on the inverse relationship between these two assets. Futures Magazine recognized this correlation as well. So much so that they printed a story on it in their December issue. That story can be viewed at:
http://www.futuresmag.com/2013/11/25/correlated-opportunities-in-the-swiss-franc?ref=hpMany of my readers have been asking me to spell out the rules of Market Correlation. Recently Futures Magazine has elected to print a story on the subject matter and I must say I'm proud of the fact that they did as I'm Author of that article. I encourage all viewers to read that piece as it spells out the rules of market correlation and provides charts that show how it works in action. The article is entitled "How to Exploit and Profit from Market Correlation" and can be viewed at:
http://www.futuresmag.com/2013/08/01/how-to-exploit-and-profit-from-market-correlation
As a follow up to the first article on Market Correlation, I've produced a second segment on this subject matter and Futures Magazine has elected to publish it. It can be viewed at:
http://www.futuresmag.com/2013/08/16/how-to-exploit-and-profit-from-market-correlation?ref=hp
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.
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 April crude dropped to a low of 99.52 a barrel finally breaking the $100 a barrel mark. 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 $97.92 a barrel and resistance at $100.32. 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.
If trading crude today consider doing so after 10:30 AM EST when the inventory are released and the markets gives better direction. While we're on the subject of crude Futures Magazine has decided to print an article we produced on crude and how to trade it. That article can viewed at:
http://www.futuresmag.com/2014/03/01/trading-crude-with-stocks-and-time
Last Wednesday crude oil inventory numbers was released and crude dropped dramatically. As such I created a video to show how Market Correlation could be used in tandem with a crude trade. The video can be viewed at: http://youtu.be/eEnJ76nr9wM
Future Challenges:
- Budget - Yesterday it was revealed that the White House claimed that it expects the economy to accelerate. Their proof? They show a chart that showed household debt has fallen and is deleveraging. Not GDP, not increased retail sales or any other measure of economic growth but household debt deleveraging. In my mind this is borderline ridiculous. It like saying "I have extra money, so I'm going to pay off some debt." This is what he's basing his hope for economic growth? I don't know what his agenda is or what the President is basing this on but if he's going to use this on the GOP for budgetary purposes, I don't think it's going to work. They'll simply say fine then you don't need an increased budget. And we thought Reaganomics was voodoo?.......
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 9 AM EST, 11 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. 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.
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 editions.
Forex Crunch, a friend of Market Tea Leaves published an article on the Smart Money whereby we define who they are and what they do. This article can be viewed at: http://www.forexcrunch.com/who-are-the-smart-money-and-what-do-they-do/
Nick Mastrandrea is the author of Market Tea Leaves. Market Tea Leaves is a free, daily newsletter that discuses and teaches market correlation. Market Tea Leaves is published daily, pre-market in the United States and can be viewed at www.markettealeaves.com Interested in Market Correlation? Want to learn more? Signup and receive Market Tea Leaves each day prior to market open. As a subscriber, you’ll also receive our daily Market Bias video that is only available to subscribers.
No comments:
Post a Comment