Good Morning Traders,
As of this writing 5:35 AM EST, here’s what we see:
US Dollar –Down at 79.415, the US Dollar is down 304 ticks and is trading at 79.415. Energies – April Oil is down at 97.96.
Financials – The June 30 year bond is currently is down 3 ticks and trading at 132.02.
Indices – The March S&P 500 emini ES contract is up 21 ticks and trading at 1873.00.
Gold – The April gold contract is trading up at 1372.50 and is up 20 ticks from its close.
Initial Conclusion: This is a nearly correlated market, this time it's correlated to the upside. The dollar is down- and oil is down- which is not 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 higher and the US dollar is trading down which is correlated. Gold is trading higher which is 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 traded mainly lower with only the Aussie exchange and the Shanghai trading higher. As of this writing all of Europe is trading higher. 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. Core Retail Sales m/m is out at 8:30 AM EST. This is major.
2. Retail Sales m/m is out at 8:30 AM EST. This is major.
3. Unemployment Claims is out at 8:30 AM EST. This is major.
4. Import Prices m/m are out at 8:30 AM EST. This is not major
5. Business Inventories m/m are out at 10 AM EST. This is not major.
6. Fed Gov Nomination Hearings start at 10 AM EST. This is not major.
7. Natural Gas Storage is out at 10:30 AM EST. This could move the Nat Gas market.
8. 30-y Bond Auction starts at 1 PM EST. This could effect afternoon trading.
9. Federal Budget Balance is out at 2 PM EST. This could effect afternoon trading.
Yesterday the Swiss Franc made it's move at around 9:45 AM EST with no apparent economic news to speak of. Look at the charts below and you'll see a pattern for both assets. The USD hit a low at around that time and rose. In the meantime the Swiss Franc fell. This was a shorting opportunity on the Swiss Franc. The key to capitalizing on these trades is to watch the USD movement. The USD rise only lent confirmation to the move. As a trader you could have netted about 15 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
|Swiss Franc - June, 2014 - 3/12/14|
|USD - June, 2014 - 3/12/14|
Yesterday we said our bias was as the futures were correlated to the downside. As such the Dow dropped 11 points. Today the markets are nearly correlated to the upside, therefore our bias is higher. Could this change? Of Course. Remember anything can happen in a volatile market.
Thus far this week we've had no real major economic news to drive the markets higher. What we've had is either real news coming out of China that drove markets down worldwide or innuendo about 1929, market top and such. Today however we get real, major economic news in that we have Retail Sales, Core Retail Sales, Unemployment Claims, etc. that have the capacity to drive the markets higher. This will serve as a test to see if the markets can withstand no economic news and be resilient. Remember that the Dow is still trading above the 16,000 level and whereas yesterday it fell; the Nasdaq and S&P gained ground. Time will tell how this all works out but one thing is clear: this market needs a steady injection of good economic news to gain ground....
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:
Many 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:
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:
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.
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 97.55 a barrel. 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 $97.31 a barrel and resistance at $98.90 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 AM EST when 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:
Yesterday 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/aTgbhah_U4I
- Budget - This past week 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 daily newsletter dedicated to a trader's success. We discuss and teach 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.