Market Tea Leaves - Bernanke Comments?
Pre-Market Global Review - 1/15/13 - Bernanke Comments?
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.
January 15, 2013
Good Morning Traders,
As of this writing 4:25 AM EST, here’s what we see:
US Dollar –Down at 79.525 The US Dollar is down 15 ticks and is trading at 79.525.
Energies – February Oil is up at 94.22.
Financials – The 30 year bond is up 19 ticks and is trading at 146.02.
Indices – The March S&P 500 emini ES contract is down at 1461.75 and is down 10 ticks.
Gold – The February gold contract is trading up at 1680.70 and is up 114 ticks.
This is not a correlated market. The missing ingredients are bonds and the indices. Bonds should be trading lower as is the US dollar. The dollar is down- and oil is up+ which is normal but 30 year bond is trading up which is not correlated. 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 with the US dollar trading lower (which is not correlated). Gold is trading up which correlates 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 closed mixed with the Hang Seng and Singapore closing lower and the rest of Asia closing higher. As of this writing, all of Europe is trading lower.
Possible challenges to traders today is the following:
- FOMC Member Rosengren speaks at 8 AM EST.
- Core Retail sales is out at 8:30 AM EST. This is a major report.
- Retail Sales is out at 8:30 AM EST. This is major.
- PPI is out at 8:30 AM EST. This is major.
- Core PPI is out at 8:30 AM EST. This is major.
- Empire State Manufacturing Index is out at 8:30 AM EST. Whereas not considered major, it has been know to move the markets.
- Business Inventories are out at 10 AM EST. This is not considered major.
Yesterday we mentioned that our bias was toward the high side and the Dow closed 19 points higher. However that was because we did not have any economic news to speak of and Asia had closed higher and Europe was trading higher. Today however we have 4 major economic reports, an FOMC member is due to speak at 8 AM EST and we are not dealing with a correlated market. Hence rules of market correlation is calling for a lower open. Could this change? Of course. Remember anything can happen in a volatile market.
Yesterday Chairman Bernanke spoke after the market closed, downplaying inflation. Apparently he kept an open mind but also stated that the worst thing for the central bank to do is "raise interest rates prematurely." On this I would have to agree with him as he knows this so-called recovery is fragile at best. He also knows that the jobs picture needs to improve and being a wise student of history, if the Fed increases interest rates and thereby reducing credit; it could destroy an already fragile recovery. This is completely contrary to the Fed members who want to increase the FFR (Federal Funds Rate). Understand that these members are free to speak their mind so it isn't as though Bernanke is their boss in the traditional sense. Imagine that? The democratic process in the workplace. In any case, Asia closed mixed and as of this writing Europe is trading lower. Today an FOMC Member speaks a 8 AM EST. This is highly unusual and we have no idea what his comments will cause the markets to do. Additionally we have 4 major economic reports all due out at 8:30 AM EST so it would appear that today will be quite volatile.
Consider this as food for thought. The bond market is going up when it shouldn't. When bonds go up, the dollar should go down. That isn't happening right now. Bonds are going up because they are considered to be a "safe haven" when the markets go down. The last time this happened was during the summer of 2011. Bonds were going up regardless of what the market was doing. What happened during the summer of 2011? You guessed it. The debt ceiling. Additionally gold is leaping toward the $1,700 an ounce level. Gold is another "safe haven" and traditionally goes up when their is fear in the markets.
On the political front it seems as though President Obama has fired the opening shot of what will turn out to be a fierce Congressional battle. Obama warned the GOP on the debt limit and I suspect he knows its going to have to be raised. I would expect that as this quarter wears on we'll much more activity in this area as either the debt ceiling is going to be raised or spending will be cut or both. As always we'll have to monitor and see. I expect the infighting will occur in mid-February as the government will start to run out of money and hence the battle commences.
As readers are probably aware I don't trade equities. However this week the Financials will be reporting. Goldman Sacks (GS) and JP Morgan (JPM) will report on Wednesday, January 16th. Obviously we'll have to see what they report but the significance here is that both these stocks report good earnings 80 percent of the time. This will probably serve as a bellwether for the markets going forward into the quarter. Do we know what they'll report? Of course not, but putting the odds in your favor when it comes to trading is always ideal. 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.
For those of you who trade stocks, another good friend of Market Tea Leaves: Mr. Hubert Senters has created a video that describes how a trader can trade stocks that beat earnings 80 percent of the time:
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. Could this change? Of course. We could have excellent economic reports today. 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 an add-on benefit, Carl Weiss has also created a 5 minute video on HFT and Algo Trading; it can be viewed at:
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. So it would seem that at the present time crude's support is at 90.00 with resistance at 95 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.
- Sequester spending cuts to commence around early March
- Debt Ceiling also around the early March time frame.
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 today then consider doing it after 10 AM EST when the market gives us direction. But 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.
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.