Pre-Market Global Review - 2/6/13 - Obama Signs Debt Ceiling Bill
This newsletter provides free market direction trading insights that are derived from our seasoned and unique, inter-market analysis. We hope that this information will provide both the novice and seasoned trader with valuable assistance. Our approach is to harvest clues clues from the Market's “tea leaves” as to what the market is doing or is likely to do.
Indices – The March S&P 500 emini ES contract is up at 1509.00 even and is up 12 ticks.
With the exception of the Indian Sensex index the rest of Asia closing higher. As of this writing all of Europe is trading higher.
Possible challenges to traders today is the following:
Yesterday Non-Manufacturing PMI came in as expected and apparently it was enough to drive the markets higher. We said our bias was towards the long side because the USD was losing value and was only 7 ticks away from its previous close. Today we have a different situation. The USD is stronger, the Bonds are up and Gold is lower. The missing ingredient are the indices so we may see the situation where the markets open higher iniatially but as the day wears on, it might fall. The great thing about market correlation is that it gives you a clue as to what to look forward to. Additionally we have no major economic news to speak of, so there's nothing to drive the markets higher.
On the political front it appears as though President Obama has decided to sign the debt ceiling extension that both House of Representatives and Senate passed last week. The caveat here is that Congress must approve a blueprint for the budget by April 15th or they will forfeit their pay. This I have to see. Whereas the debt ceiling talks have been put off until May 19th, sequester spending cuts will occur in the early March time frame, as scheduled. It will be interesting to see how DC will react to this. In all likelihood they'll probably put it off until the debt ceiling issue comes into play but we'll have to see. At some point this month, this will be revisited as Congress must come to some decision prior to March 1st. March 1st marks the day that automatic spending cuts come into play and the DC folks have to decide what they're going to do about it. If you're wondering what this has to do with markets; I would say to you everything. Look at what happened during the recent fiscal cliff crisis. If you're wondering why we haven't had correlated markets since the election, look no further. The markets do not like uncertainty when it comes to fiscal issues and anything that reeks of uncertainty is not viewed in a positive light. Will the markets survive? of course. It would seem to me that President Obama has elected to give the GOP something they wanted and to buy time for Congress to decide how to proceed. This is the thing with politics in recent years. They don't do anything until they have to. In other words, they aren't proactive. We're now hearing that Eric Cantor, Karl Rove and their gang is attempting to reinvent the GOP. They're looking to divorce themselves from the Tea Party. They must think the American people have a dim memory. Since when does a pledge to an individual (Grover Norquist) outweigh an oath of office to the Constitution and the American People? The American People re-elected this President because they didn't like what they saw on the far right.
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:
http://youtu.be/Ysx-nOgAtkI
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.
Future Challenges:
- Sequester spending cuts to commence around early March
- Debt Ceiling in the May time frame.
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