Pre-Market Global Review - 3/20/13 - FOMC Day

Good Morning Traders,
As of this writing 5:00 AM EST, here’s what we see:
 
US Dollar – Down at 83.200 the US Dollar is down 11 ticks and is trading at 83.200.  
Energies – May Oil is up at 92.78.
Financials – The June 30 year bond is down 6 ticks and is trading at 143.13. 
Indices – The June S&P 500 emini ES contract is up at 1546.50 and is up 18 ticks.
Gold – The April gold contract is trading down at 1609.80 and is down 14 ticks from its close.

Quick Note: Unless otherwise shown the above contract months are now June.   

Initial Conclusion: This is a nearly correlated market to the upside.  The dollar is down- and oil is up+ which is normal and 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 up and the US dollar is trading lower which is correlated.  Gold is trading lower 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. 

Asia closed mixed with the Aussie, Hang Seng and Sensex exchanges closing lower and the rest of Asia closing higher.  As of this writing all of Europe is trading higher. 
 
 
Possible challenges to traders today is the following

1.  Crude Inventory is out at 10:30 AM EST.  This will move the crude market.
2.  FOMC Economic Projections are out at 2 PM EST.  This is major.
3.  FOMC Statement is out at 2 PM EST.  This is major.
4.  Federal Funds Rate is out at 2 PM EST.  This is major.
5.  FOMC Press Conference starts at 2:30 PM EST.  This is major. 

Yesterday we said our bias was to the downside because the USD and bonds were trading higher.  However after spending half the day in negative territory the Smart Money decided that after two days of losses, they weren't going to let the Dow close in negative territory.  Hence the  net result being that the Dow closed 4 points higher.  The rest of the indices closed lower.  Today the markets are nearly correlated with the missing ingredient being Gold.  But after two days of going to higher highs, the fear factor with Gold is subsiding, so our bias today is to the upside but bear in mind that today is FOMC Day and anything can happen.  Asia closed mixed but Europe is currently trading higher.  Both the USD and Bonds are trading lower.  When bonds are lower, this is typically bullish for the indices.  Could this change? Of Course.  Remember anything can happen in a volatile market.




Much has been written about the Cyprus conundrum. Just about every news story for the last two days has been about the Cyprus bailout.  Forex Crunch has published an article I've written on the subject,  It can be viewed at http://www.forexcrunch.com/cyprus-conundrum-corners-markets/  I find it very interesting that yesterday a few minutes before the close of trading a report came out that stated "ECB to Offer Liquidity to Cyprus" and the Dow closed 4 points higher.  Interestingly enough this "report" hasn't been substantiated by any other news bureau other than Fox News.  Call me Irish (St. Patty's Day just past) but it seems to me that some entity didn't want the Dow to close in negative territory after two consecutive days of losses.  Smart Money at work?   Enough said.  

Today is FOMC Day and as those of you who've been with Market Tea Leaves for awhile know, I don't trade on FOMC Day.  For me, the markets have never shown that they act with any sense of normalcy on this day.  The issue is not if whether or not the FOMC will raise the FFR (Federal Funds Rate aka the Overnight Rate) but the emphasis will be on the language they use.  Every analyst and pundit will attempt to interpret the language they use.  They will have a press conference at 2:30 PM so it will be interesting to hear what, if any new twist or program they will use going forward.  Many people are calling for Ben Bernanke's head and no doubt if the other party won in November, he'd be gone by now.  But you have to careful what you wish for as Ben Bernanke is an ardent student of business history and one the things he studied was the cause of the Great Depression of the 1930's.  He knew that without credit, no modern economy could function.  This provided a good blueprint in 2008 during the financial meltdown.  We'll just have to see what they say come this afternoon. 

   

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 market correlation is calling for a higher open and our bias is towards the long side.  Could this change?  Of course.  In a volatile market anything can happen.  We'll have to monitor and see.  For awhile now we've promised a video on how a trader can use Market Correlation in tandem with their daily trading.  A good friend of Market Tea Leaves: Carl Weiss of Sceeto and I produced a video on December 22nd that shows this.  Here it is:

http://youtu.be/tUZEZNKnGrY

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 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 crude dropped to a low of 92.36 a barrel and held.  We'll have to monitor and see if crude either goes lower or holds at the present level.   It seems that at the present time crude's support is at 92.00 with resistance at 96.00 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:

 - Sequester spending cuts to commence March 1st.
 - Debt Ceiling in the May time frame.

-  European Contraction


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 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 10:30 AM when the inventory numbers are released and 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.

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.

To view previous issues of Market Tea Leaves visit our archive.

Pre-Market Global Review - 3/19/13 - Cyprus Continues to Rattle Markets

Good Morning Traders,
As of this writing 6:15 AM EST, here’s what we see:
 
US Dollar – Up at 82.935 the US Dollar is up 36 ticks and is trading at 82.935.  
Energies – May Oil is down at 94.06.
Financials – The June 30 year bond is up 11 ticks and is trading at 143.02. 
Indices – The June S&P 500 emini ES contract is down at 1546.25 and is down 2 ticks.
Gold – The April gold contract is trading down at 1602.10 and is down 28 ticks from its close.

Quick Note: Unless otherwise shown the above contract months are now June.   

 

Initial Conclusion: This is a correlated market, unfortunately it is 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 down and the US dollar is trading higher which is  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. 

With the exception of the Hang Seng and Sensex exchanges, the rest of Asia closed higher.  As of this writing all of Europe is trading lower. 
 
 
Possible challenges to traders today is the following

1. Building Permits are out at 8:30AM EST.  This is major. 
2. Housing Starts are out at 8:30 AM EST.  This is major.

Yesterday we said our bias was to the downside because the USD and bonds were trading higher.  The net result being that the Dow closed 62 points lower.  Today the markets are  correlated but are correlated to the downside as such our bias is to the downside.  Here's why. Most of Asia closed higher but Europe is currently trading lower.  Both the USD and Bonds are trading higher.  When bonds are higher, this is bearish for the indices.  Could this change?  Of course.   Remember anything can happen in a volatile market.

Much has been written thus far about the Cyprus bailout, especially as it concerns depositors.  I think it is fair to say that the Euro Zone and the IMF don't have too much confidence in the Cypriot government such that they felt it necessary to charge a levy on current deposit held in a Cypriot bank.  This is unprecedented in our time.  I'm still curious as to why both the Euro Zone and IMF are in essence taking this out on depositors.  If they don't have confidence in government leadership then demand a new election be held.  It wouldn't be the first time it ever happened.  Look at what happened in Greece or more recently Italy.  The Cypriot government has stated that they will review the levy percentage wise and decide by 6 PM their time as to what it should be.  That's about 11 AM EST which means that during the trading day we need to be aware that around 11 AM a decision will be made that can effect our markets and trading.    At the same time they've elected to close their banks until Thursday so as not to cause another bank run.  Of course, they're saying that "we need time to muster support for the levies"  but in reality they don't want a run on their banks.  I can only imagine what would happen if this occurred in the West.  It almost occurred in 2008 when we had the financial meltdown.  But why Cyprus?  Why do this to an island nation that doesn't have a major significance?  I suspect there's another reason.  Cyprus is the birthplace for Binary Options.  Binary Options were for the longest time considered excessive gambling.  The only thing you have to know with binary options is direction.  Long or short?  There's no real skill involved such as we have with traditional trading.  For the longest time the only place in the world where you could open an account to trade binary options was, you guessed it, Cyprus.  That has since changed.  The Nadex exchange is open in the United States and more firms are allowing trading.  As such we don't need to be concerned about identity thief issues.   What most pundits fail to realize is the Russians also stepped in to aid Cyprus.  They are allowing extended time horizons to pay back loans.  I suspect this is because the Russians have capital invested in Cyprus and don't want to run the risk of a total loss of capital.  Time will tell how this all works out but for the present time be mindful of the announcement.

   

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 market correlation is calling for a lower open and our bias is towards the short side.  Could this change?  Of course.  In a volatile market anything can happen.  We'll have to monitor and see.  For awhile now we've promised a video on how a trader can use Market Correlation in tandem with their daily trading.  A good friend of Market Tea Leaves: Carl Weiss of Sceeto and I produced a video on December 22nd that shows this.  Here it is:

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 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 crude dropped to a low of 92.13 a barrel and held.  We'll have to monitor and see if crude either goes lower or holds at the present level.   It seems that at the present time crude's support is at 92.00 with resistance at 96.00 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:
 - Sequester spending cuts to commence March 1st.
 - Debt Ceiling in the May time frame.

-  European Contraction

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 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.

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.
To view previous issues of Market Tea Leaves visit our archive.

Pre-Market Global Review - Meet the New GOP - Same as the Old

Good Morning Traders,
As of this writing 4:40 AM EST, here’s what we see:
 
US Dollar – Up at 82.880 the US Dollar is up 414 ticks and is trading at 82.880.  
Energies – May Oil is down at 92.81.
Financials – The June 30 year bond is up 37 ticks and is trading at 143.02. 
Indices – The June S&P 500 emini ES contract is down at 1539.00 and is down 60 ticks.
Gold – The April gold contract is trading up at 1603.10 and is up 107 ticks from its close.

Quick Note: Unless otherwise shown the above contract months are now June.   

 

Initial Conclusion: This is a mainly correlated market, unfortunately it is 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 down and the US dollar is trading higher 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 closed lower.  As of this writing all of Europe is trading lower.  It would that over the weekend the Euro-zone and the IMF decided to assist the island nation of Cyprus with a 10 Billion Euro bailout as the nation was on the brink of bankruptcy.  By the same token they also decided to charge depositors with a levy for doing so.  So depending upon how money the depositors have in their accounts, they will be charged a percentage of that sum; which varies based upon on how much money they have.  This in turn caused the Euro to drop dramatically and the USD to rise.  The Euro dropped to a low of 1.2892 and is now starting to rise.  This caused the Asian markets to close lower and currently Europe is trading lower across the board.  Gold has shot up due to the fear factor in the markets.  It would seem as though we aren't done with the European Contraction and I'm surprised at Christine Lagarde.  She always struck me as the adult in the room and severely criticized Hank Paulsen for allowing Lehman Bros. to fail (she was right).  So now if a depositor has over 100,000 Euros in their bank account (or more) they will pay up to 9.9% as a levy.  The Cryriot government has announced that they will revise these percentages to a lower amount and it is helping to stabilize the markets.  Time will tell is this is a one day event or will extend to a longer period.

 
 
Possible challenges to traders today is the following

1. NAHB Housing Market Index is out at 10AM EST.  This is major. 
2. No other economic news.
3. Lack of economic news/

On Friday we said our bias was to the downside because the bonds were trading higher.  The net result being that the Dow closed 25 points lower.  Today the markets are nearly correlated but are correlated to the downside as such our bias is to the downside.  Here's why. All of Asia closed lower and Europe is currently trading lower.  Both the USD and Bonds are trading higher.  When bonds are higher, this is bearish for the indices.  Could this change?  Of course.   Remember anything can happen in a volatile market.

Much debate has erupted from this past weeks’ CPAC conference.  Noticeably absent was Governor Chris Christie of New Jersey, but I guess it doesn’t pay to get too close to the President.  Despite the fact that you need federal funds to help rebuild your state.  Paul Ryan wants to be known as the man who saved Medicare but quite frankly it would appear as though he going to be known as the man who torpedoed Medicare.  Additionally the GOP is once again attempting to get rid of the Affordable Care Act aka Obamacare.  If you were to ask me it doesn’t seem as though the GOP has learned anything from this past election cycle.  They’re still attempting the same obstructionism that got us into this situation.  The President offered them a “dove” in terms of comprising on Social Security.  He offered to propose chained CPI as a means of cost-of-living adjustments.  The GOP neither gave nor promised anything in return.  Apparently this isn’t good enough for the GOP. 

Let’s examine something.  We have two major issues to deal with in the United States.  One is the sequester which is currently underway and the other is the debt ceiling which will happen around the May timeframe unless something is resolved now.  These two issues will lead to an even bigger problem in the United States as the longer these issues remain unresolved we’ll have the looming specter of recession hanging over our shoulders.  But I have no doubt that should this occur (and I hope it doesn’t); the DC crowd will have no problem playing the blame game with each other.  What they keep on forgetting is that the American people are stuck in the crossfire.

   

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 market correlation is calling for a lower open and our bias is towards the short side.  Could this change?  Of course.  In a volatile market anything can happen.  We'll have to monitor and see.  For awhile now we've promised a video on how a trader can use Market Correlation in tandem with their daily trading.  A good friend of Market Tea Leaves: Carl Weiss of Sceeto and I produced a video on December 22nd that shows this.  Here it is:

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 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. On Friday crude dropped to a low of 93.01 a barrel and held.  Even this morning with the fiasco going on in Europe, crude went to a low of 92.17.   We'll have to monitor and see if crude either goes lower or holds at the present level.   It seems that at the present time crude's support is at 90.00 with resistance at 96.00 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:
 - Sequester spending cuts to commence March 1st.
 - Debt Ceiling in the May time frame.

-  European Contraction

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 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.

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.
To view previous issues of Market Tea Leaves visit our archive.

Pre-Market Global Review - 3/15/13 - Quadruple Witching Friday

Good Morning Traders,
As of this writing 4:45 AM EST, here’s what we see:
US Dollar – Down at 82.720 the US Dollar is down 143 ticks and is trading at 82.720.
Energies – May Oil is up fractionally at 93.41.
Financials – The June 30 year bond is up 6 ticks and is trading at 141.16. 
Indices – The June S&P 500 emini ES contract is down at 1555.00 and is down 4 ticks.
Gold – The April gold contract is trading down at 1590.40 and is down 3 ticks from its close.

Quick Note: Unless otherwise shown the above contract months are now June.   

 

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 up and the US dollar is trading higher which is not correlated.  Gold is trading down 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. 

With the exception of the Hang Seng and Sensex exchanges, Asia closed higher.  As of this writing all of Europe is trading lower.  

Possible challenges to traders today is the following

1. Core CPI is out at 8:30 AM EST.  This is major. 
2. CPI is out at 8:30 AM EST.  This is major.
3. Empire State Manufacturing Index is out at 8:30 AM EST.  This is major
4. TIC Long Term Purchases are out at 9 AM EST.  This is not major.
5. Capacity Utilization Rate is out at 9:15 AM EST.  This is not major.
6. Industrial Production Rate is out at 9:15 AM EST.  This is not major.
7. Preliminary UOM Consumer Sentiment is out at 9:55 AM EST.  This is major. 
8. Preliminary UOM Inflation Expectations are out at 9:55 AM EST.  This is major.

Yesterday we said our bias was to the upside.  The net result being that the Dow 84 points higher.  Today the markets are not correlated and as such our bias is to the downside.  Here's why.  Asia closed mainly higher but Europe is currently trading lower.  Whereas the USD is currently trading lower, the Bond market is trading higher.  When bonds are higher, this is bearish for the indices.  Could this change?  Of course.   Remember anything can happen in a volatile market.

 

 

Today we'll focus on the markets.  The political front is dominated by the events of the CPAC conference with one member talking about the Vietnam War.  Did anyone bother to tell him that we're in the 21st century?  Today we have quadruple witching Friday which is an even that occurs 4 times a year.  Each month on the third Friday of the month, we have options expiration which simply means that the current month contract rolls over to next month.  Quadruple Witching means that 4 types of financial instruments will rollover, namely:

 - Market Index Futures

 - Market Index Options

 - Stock Options 

 - Stock Futures

Prior to 2002 it was called Triple Witching but in that year the advent of Single Stock Futures became a reality and therefore it became Quadruple Witching Friday.  The bottom line here is that on any given month options expiration is considered volatile.  On Quadruple Witching Friday it is increased volatility.  The price of the expiring contract usually falls off and the price of new or forward month spikes in value.  This is typically a short lived phenomena as the prices quickly reverse and come down to a more realistic amount.  From a trading point of view this is where the volatility comes into play  as a trader could be lured into thinking that the prices really are increasing.  So be careful if trading.

 

   

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 market correlation is calling for a higher open and our bias is towards the long side.  Could this change?  Of course.  In a volatile market anything can happen.  We'll have to monitor and see.  For awhile now we've promised a video on how a trader can use Market Correlation in tandem with their daily trading.  A good friend of Market Tea Leaves: Carl Weiss of Sceeto and I produced a video on December 22nd that shows this.  Here it is:

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 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 crude dropped to a low of 92.01 a barrel and held.   We'll have to monitor and see if crude either goes lower or holds at the present level.   It seems that at the present time crude's support is at 90.00 with resistance at 96.00 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:
 - Sequester spending cuts to commence March 1st.
 - Debt Ceiling in the May time frame.

 - European Contraction

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 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.

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.

To view previous issues of Market Tea Leaves visit our archive.

Pre-Market Global Review - SNB Caps Franc

Good Morning Traders,

As of this writing 5:45 AM EST, here’s what we see:

US Dollar – Up at 83.235 the US Dollar is up 83 ticks and is trading at 83.235.
Energies – April Oil is up at 92.76.
Financials – The 30 year bond is down 16 ticks and is trading at 141.02. 
Indices – The March S&P 500 emini ES contract is up at 1558.00 and is up 8 ticks.
Gold – The April gold contract is trading down at 1585.80 and is down 26 ticks from its close.

Quick Note: Unless otherwise shown the above contract months are now June.   

 

Initial Conclusion: This is not a correlated market.   The dollar is up+ and oil is up+  which is not normal and 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 up and the US dollar is trading higher which is not correlated.  Gold is trading down which is correlated with the US dollar trading higher.   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. 

With the exception of the Aussie and Singapore exchanges, Asia closed higher.  As of this writing all of Europe is trading higher.  

Possible challenges to traders today is the following

1. PPI is out at 8:30 AM EST.  This is major. 
2. Unemployment Claims out at 8:30 AM EST.  This is major.
3. Core PPI is out at 8:30 AM EST.  This is major
4. Current Account is out at 8:30 AM EST.  This is not major.
5. FOMC Member Raskin speaks at 9 AM EST.  This is major.
6. Natural Gas Storage is out at 10:30 AM EST.  This will move the Nat Gas market.
7. 30 Year Bond Auction starts at 1 PM EST.  This is major.

Yesterday we said our bias was to downside with the outlier being Gold.  The Dow spent most of the day in negative territory and closed fractionally higher at 5 points.  The rest of the indices closed fractionally higher as well.  Today the markets are not correlated.  However our bias is to the upside.  Here's why.  Asia closed mainly higher and Europe is currently trading higher.  Whereas the USD is currently trading higher, the Bond market is trading lower.  When bonds are lower, this is bullish for the indices. Could this change?  Of course.   Remember anything can happen in a volatile market.

 

 

Today we'll focus on the markets.  The political front is unchanged and Paul Ryan wants to be known as the man who saved Medicare.  Today the Swiss National Bank publicly stated that they will put a cap on the exchange rate of the Swiss Franc at 1.20.  They also stated that they will use any means to keep the exchange rate at this level which means that they will purchase a correlated pair.  In this case that means the Euro.  As the Swiss Franc is more commonly correlated with that currency.  The last time they did this was at the end of 2011 as that time the exchange rate for the Swiss Franc was upwards past 1.34 and the Swiss were concerned that an over valued franc would make Swiss products and services more expensive from an export point of view.  The Swiss are not the only concerned with this as look what happened recently with the Japanese Yen.  The Japanese government has done the exact same thing and the Yen has fallen recently.  This is clearly a race to the bottom.  No nation wants an overvalued currency as it means that their products and services will be more expensive overseas.  I recently produced an article for Forex Crunch called "The USD- Why is it so High?" that explains this phenomena in depth.  It can be viewed at:

http://www.forexcrunch.com/the-usd-why-is-it-so-high/ 

 

 
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 market correlation is calling for a higher open and our bias is towards the long side.  Could this change?  Of course.  In a volatile market anything can happen.  We'll have to monitor and see.  For awhile now we've promised a video on how a trader can use Market Correlation in tandem with their daily trading.  A good friend of Market Tea Leaves: Carl Weiss of Sceeto and I produced a video on December 22nd that shows this.  Here it is:

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 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 crude dropped to a low of 91.91 a barrel and held.   We'll have to monitor and see if crude either goes lower or holds at the present level.   It seems that at the present time crude's support is at 90.00 with resistance at 96.00 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:
 - Sequester spending cuts to commence March 1st.
 - Debt Ceiling in the May time frame.

 - European Contraction

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 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.  Also be mindful that the 30 Year Bond Auction starts at 1 PM EST and this can make afternoon trading erratic.  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 blogs.

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