Pre-Market Global Review - 1/14/14 - Uncorrelated Market Equals Down Day

Good Morning Traders,


As of this writing 5:35 AM EST, here’s what we see:
 
US Dollar – Up at 80.690, the US Dollar is up 79 ticks and is trading at 80.690.                            Energies – February Oil is up at 92.13       
Financials – The March 30 year bond is down 9 ticks and trading at 130.26.      
Indices – The March S&P 500 emini ES contract is up 5 ticks and trading at 1816.25. 
Gold – The February gold contract is trading down at 1247.90 and is down 31 ticks from its close.   
           
 
Initial Conclusion: This is not a correlated market.  The dollar is up+ and oil is up+ 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 up which is not correlated.  Gold is trading lower which is 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. 
               
Asia traded mainly lower with the exception of Shanghai exchange which traded higher.  As of this writing all of Europe is trading lower.   
 
  Possible challenges to traders today is the following:
                                                
1.  NFIB Small Business Index is out at 7:30 AM EST.  This is not major.                 
2.  Core Retail Sales m/m is out at 8:30 AM EST.  This is major.
3.  Retail Sales m/m is out at 8:30 AM EST.  This is major.
4.  Import Prices m/m is out at 8:30 AM EST.  This is major.
5.  Business Inventories m/m is out at 10 AM EST.  This is not major.
6.  FOMC Member Plosser Speaks at 12:45 PM EST.  This is major.
7.  FOMC Member Fisher Speaks at 1:20 PM EST.  This is major.      
      
      Currencies       
Yesterday the Swiss Franc made it's move at around 8:30 AM EST with no economic news to speak of.  Look at the charts below and you'll see a pattern for both assets.  The USD fell at around that time and 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 rise only lent confirmation to the move.  As a trader you could have netted 20-30 ticks on this trade.  To expand the chart, right click and open in a new window.
 
 Charts Courtesy of Trend Following Trades

Swiss Franc -03/14 - 1/13/14

USD - 3/14 - 1/13/14

 
Bias


Yesterday we said our bias was to the downside as the markets showed no evidence of correlation.  Well the Dow dropped to the tune of 179 points and the other indices dropped as well.  Today we are not dealing with a correlated market and our bias is neutral which is to say that the market could go in any direction today.       Could this change?  Of Course.  Remember anything can happen in a volatile market.
 
Yesterday the markets basically dropped like a rock despite the fact that Asia and Europe were both trading higher.  Then it was announced that someone from the Fed was commenting on the continued tapering.  Well we knew the market was going to drop and we foresaw that as early as 6 AM yesterday despite a Fed official comparing tapering to football.  The truth is that for us we saw no evidence of correlation at all.  Additionally there was no economic news that could potentially drive the markets higher.  Thus our bias was to the downside.  The problem with some of the news stories that float around concerning comments is people actually believe them as truth with no evidence of reality to back it up.  Now do we know the Fed is going to continue tapering?  Of course we do so this "news item" really wasn't anything new at all or they see a headline and think "it's gospel."  Again without any thought as to whether it's real or not..

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=hp


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:


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 neutral.  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 higher and the US Dollar is advancing.  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 February crude dropped to a low of 91.43 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 $90.53 a barrel and resistance at $93.11, so there's no race to $100 a barrel.  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 - Senate passes budget deal, now it's up to Obama to sign.  I was wondering why Obama is reluctant to sign the budget deal until it was revealed that this budget doesn't include any extension of Unemployment Benefits.  This surprises me as how could Patty Murray, a Democrat from Washington State allow this?  It also tells me that our elected morons don't read the bills that they vote on.  Obama seeks to augment this by pushing thru a bill that will extend UI benefits and that bill should be voted on today or tomorrow.  As an update to this, the Senate has postponed the vote on this bill until this week.  Now this same bill has to be voted on in the House of Representatives.

Crude oil is trading higher 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.  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.barchart.com/headlines/story/2278223/does-this-company-manufacture-junk




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.
 






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.

Pre-Market Global Review - 1/13/14 - A Stellar Jobs Report?

Good Morning Traders,


As of this writing 6:05 AM EST, here’s what we see:
 
US Dollar – Down at 80.690, the US Dollar is down 64 ticks and is trading at 80.690.                             Energies – February Oil is down at 92.08       
Financials – The March 30 year bond is up 3 ticks and trading at 130.26.      
Indices – The March S&P 500 emini ES contract is down 17 ticks and trading at 1833.50. 
Gold – The February gold contract is trading down at 1245.50 and is down 17 ticks from its close.   
           
 
Initial Conclusion: This is not a correlated market.  The dollar is down- and oil is down- which is not normal but 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 down 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. 
               
Asia traded mainly higher with the exception of Shanghai and Singapore which traded lower.  As of this writing all of Europe is trading higher.   
 
  Possible challenges to traders today is the following:
                                                
1.  Federal Balance Budget is out at 2 PM EST.  This could impact afternoon trading.               
2.  Lack of major economic news.       
      
      Currencies       
On Friday the Swiss Franc made it's move at around 9:15 AM EST after the Jobs Report was released.  Look at the charts below and you'll see a pattern for both assets.  The USD fell at around that time and 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 rise only lent confirmation to the move.  As a trader you could have netted 20-30 ticks on this trade.  
 
 Charts Courtesy of Trend Following Trades

Swiss Franc - 3/14 - 1/10/14

USD - 3/14 - 1/10/14

 
Bias


Friday being Jobs Friday, we maintain a neutral bias which is to say that the markets can be driven in any direction.  Well the Dow dropped by 8 points but the other indices rose.  Today we aren't dealing with a correlated market and our bias is to the downside.     Could this change?  Of Course.  Remember anything can happen in a volatile market.
 
With all the fanfare regarding the Non Farm Payrolls, it apparently did nothing for the markets.  A gain of 74,000 jobs is not much to speak of in an economy that needs a great deal more.  This past week one reporter from Marketwatch even suggested that cutting off unemployment benefits would have the effect of reducing the unemployment rate.  And this is from someone who is supposely an "expert" in this field.  Well guess what folks, if someone is no longer collecting UI that person is considered "employed" by the Department of Labor.  One would have thought that after a Great Recession, someone would have come up with a better criteria on how judge these matters.  Ironically it's been about two weeks now and those long term unemployed have seen their benefits reduced to zero.  And our Congress?  They're still debating how this is going to get paid and while they're debating, families are going to have to figure out how to put food on the table.  And this notion about "giving up looking for work" is ridiculous.  Want proof?  Go to the Bureau of Labor Statistics and look at the U6 rate; this is the measure of long term unemployed.  It currently rests at 13 million, up 300,000 from November.  Compare that to a measly 74,000 jobs created.  And if you think that the Federal Reserve doesn't know this, think again.  They've already announced that they will keep interest rates low for a "prolonged period" because they know this economy is still not creating enough jobs...

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=hp


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:


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 higher and the US Dollar is declining.  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. On Friday February crude dropped to a low of 92.00 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 $91.54 a barrel and resistance at $93.11, so there doesn't seem to be any race to $100 a barrel.  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 - Senate passes budget deal, now it's up to Obama to sign.  I was wondering why Obama is reluctant to sign the budget deal until it was revealed that this budget doesn't include any extension of Unemployment Benefits.  This surprises me as how could Patty Murray, a Democrat from Washington State allow this?  It also tells me that our elected morons don't read the bills that they vote on.  Obama seeks to augment this by pushing thru a bill that will extend UI benefits and that bill should be voted on today or tomorrow.  As an update to this, the Senate has postponed the vote on this bill until this week.  Now this same bill has to be voted on in the House of Representatives.

Crude oil is trading higher and the US Dollar is declining.  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.  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.barchart.com/headlines/story/2278223/does-this-company-manufacture-junk




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.
 






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.

Pre-Market Global Review - 1/9/14 - FOMC Fail to Fire Up Markets

Good Morning Traders,


As of this writing 5:40 AM EST, here’s what we see:
 
US Dollar – Down at 81.115, the US Dollar is down 47 ticks and is trading at 81.115.                            Energies – February Oil is up at 92.82       
Financials – The March 30 year bond is up 2 ticks and trading at 128.27.      
Indices – The March S&P 500 emini ES contract is up 25 ticks and trading at 1838.50. 
Gold – The February gold contract is trading up at 1226.00 and is up 5 ticks from its close.   
           
 
Initial Conclusion: This is not a correlated market.  The dollar is down- and oil is up+ which is normal but 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 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 lower.  As of this writing all of Europe is trading higher.   
 
  Possible challenges to traders today is the following:
                                                
1.  Unemployment Claims are out at 8:30 AM EST.  This is major.             
2.  Natural Gas Supplies are out at 10:30 AM EST.  This could move the Nat Gas market.            
3.  30-y Bond Auction starts at 1 PM EST.
4.  Challenger Job Cuts are out at 7:30 AM EST.  This is major.

      Currencies       
Yesterday the Swiss Franc made it's move at around 10:15 AM EST with no major economic news to speak of.  Look at the charts below and you'll see a pattern for both assets.  The USD rose at around that time and 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 20-30 ticks on this trade.   As many of you know this past week was especially challenging for us because there was an issue with Ninja Trader, version 7, release 18.  John Karnas, the CEO of Trend Following Traders personally spent hours with me on a Sunday to resolve this issue.  I think highly of their charts and would recommend them.  We finally have charts that we can show.  
 
 
 Charts Courtesy of Trend Following Trades

Swiss Franc - 3/14 - 1/8/14

USD - 3/14 - 1/8/14

 
Bias


Yesterday we said our bias was to the downside as the USD was trading lower, Europe was lower and the US Futures were pointed lower.  As expected the market fell and the Dow dropped 68 points.  The S&P dropped by 1 but the NASDAQ showed a gain of 13 points.  Today we are not dealing with a correlated market however our bias is to the upside.  Why?  The USD is trading down, oil is higher, Gold is higher, Europe is higher and the US Futures are pointed up.     Could this change?  Of Course.  Remember anything can happen in a volatile market.
 
With all the fanfare regarding the FOMC Meeting Minutes, it apparently did nothing for the markets.  The bigger question is why?  Usually when the FOMC announces its meeting minutes, it's generally a market mover.  So what happened?  The minutes themselves didn't say anything that we didn't already know; that being that the Fed is tapering off the Quantitative Easing program.  This was a very cut and dry report as there's no guessing as to what the Fed meant or what did they really mean?  Notice that despite the fact that the ADP report came out at 8:15 AM EST to very good numbers, the markets opened lower and stayed there the rest of the session.  There was no rebound to parity after the meeting minutes were released.  This should tell you that there's something to this market correlation stuff we keep talking about.  Today we have Unemployment Claims which is always a major report but we also have the ECB Minimum Bid rate which is the equivalent to our Overnight Rate.  This could move the European market which in turn could have an impact on the US markets.

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=hp


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:


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 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 higher and the US Dollar is declining.  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 February crude dropped to a low of 92.26 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 $92.02 a barrel and resistance at $93.27, so there doesn't seem to be any race to $100 a barrel.  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 - Senate passes budget deal, now it's up to Obama to sign.  I was wondering why Obama is reluctant to sign the budget deal until it was revealed that this budget doesn't include any extension of Unemployment Benefits.  This surprises me as how could Patty Murray, a Democrat from Washington State allow this?  It also tells me that our elected morons don't read the bills that they vote on.  Obama seeks to augment this by pushing thru a bill that will extend UI benefits and that bill should be voted on today or tomorrow.  As an update to this, the Senate has postponed the vote on this bill until today.  Now this same bill has to be voted on in the House of Representatives.

Crude oil is trading higher and the US Dollar is declining.  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.  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.barchart.com/headlines/story/2278223/does-this-company-manufacture-junk




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.
 






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.

Pre-Market Global Review - 1/8/14 - Do Economic Reports Finally Mean Business?

Good Morning Traders,
 
As of this writing 5:35 AM EST, here’s what we see:
 
US Dollar – Up at 81.160, the US Dollar is up 180 ticks and is trading at 81.160.                           
Energies – February Oil is up at 93.76       
Financials – The March 30 year bond is down 6 ticks and trading at 129.04.      
Indices – The March S&P 500 emini ES contract is down 7 ticks and trading at 1829.00. 
Gold – The February gold contract is trading down at 1225.70 and is down 39 ticks from its close.   
           
 
Initial Conclusion: This is not a correlated market.  The dollar is up+ and oil is up+ 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 up which is not correlated.  Gold is trading lower which is  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. 
               
Asia traded mainly higher, with the exception of the Shanghai exchange which traded fractionally lower.  As of this writing all of Europe is trading lower.   
 
  Possible challenges to traders today is the following:
                                                
1.  ADP Non-Farm Employment Change is out at 8:15 AM EST. This is major.            
2.  Crude Oil Inventories is out at 10:30 AM EST.  This could move the crude market.          
3.  10-y Bond Auction starts at 1 PM EST.
4.  FOMC Meeting Minutes is out at 2 PM EST.  This is major.
5.  Consumer Credit m/m is out at 3 PM EST.  This could impact afternoon trading.

      Currencies       
Yesterday the Swiss Franc made it's move at around 8:30 AM EST after the Trade Balance numbers was released.  Look at the charts below and you'll see a pattern for both assets.  The USD fell at around that time and 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 fall only lent confirmation to the move.  As a trader you could have netted 20-30 ticks on this trade.   As many of you know this past week was especially challenging for us because there was an issue with Ninja Trader, version 7, release 18.  John Karnas, the CEO of Trend Following Traders personally spent hours with me on a Sunday to resolve this issue.  I think highly of their charts and would recommend them.  We finally have charts that we can show.  
 
 
 Charts Courtesy of Trend Following Trades

Swiss Franc - 3/14 - 1/7/14

USD - 3/14 - 1/7/14

 
Bias


Yesterday we said our bias was to the upside as the Bonds were trading lower, Europe was higher and the US Futures were pointed higher.  As expected the market rose and the Dow gained 106 points.  The other indices gained ground as well.  Today we aren't dealing with a correlated market and our bias is to the downside.  Why?  The USD is lower, Gold is lower, Europe is trading lower and the US futures are pointed down.    Could this change?  Of Course.  Remember anything can happen in a volatile market.
 
Yesterday we made mention of the fact that economic reports look as though they're starting to having some meaning again as Monday's PMI number appeared to move the market to the downside and yesterday's Trade Balance number appeared to move the markets to the upside.  Is this the beginning of a new trend whereby economic news finally has some meaning?  It wasn't too long ago that the markets were rewarding bad news with gains due to taperfest.  Now that that's behind us and we have clear direction as to the Fed's intent, we no longer have to "reverse engineer" economic reports;  meaning bad news is bad and good news is good.  We'll have to monitor and see if this is in fact the case.  In the meantime we have economic reports that could move the market today: that being the ADP Non-Farm Payroll Change due out at 8:15 AM EST.  Don't forget the FOMC Meeting Minutes due out at 2 PM EST as this will impact afternoon trading.

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=hp


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:


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 higher and the US Dollar is higher.  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 February crude dropped to a low of 93.35 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 $93.04 a barrel and resistance at $94.63.  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 - Senate passes budget deal, now it's up to Obama to sign.  I was wondering why Obama is reluctant to sign the budget deal until it was revealed that this budget doesn't include any extension of Unemployment Benefits.  This surprises me as how could Patty Murray, a Democrat from Washington State allow this?  It also tells me that our elected morons don't read the bills that they vote on.  Obama seeks to augment this by pushing thru a bill that will extend UI benefits and that bill should be voted on today or tomorrow.  As an update to this, the Senate has postponed the vote on this bill until today.  Now this same bill has to be voted on in the House of Representatives.

Crude oil is trading higher and the US Dollar is advancing.  This is not 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.  If you feel compelled to trade consider doing so after 10:30 AM when the inventory numbers are released and 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.barchart.com/headlines/story/2278223/does-this-company-manufacture-junk




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.
 






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.