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 from the Market's “tea leaves” as to what the market is doing or is likely to do.
February 13, 2013
Good Morning Traders,
As of this writing 5:30 AM EST, here’s what we see:
US Dollar –Down at 80.020 the US Dollar is down 143 ticks and is trading at 80.020
Energies – March Oil is up at 97.59.
Financials – The 30 year bond is down 5 ticks and is trading at 143.03.
Indices – The March S&P 500 emini ES contract is up at 1517.00 even and is up 4 ticks.
Gold – The April gold contract is trading down at 1646.70 and is down 30 ticks.
This is not a correlated market. The dollar is down- and oil is up+ which is normal and the 30 year bond is trading down which correlates with the US dollar trading down. 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. Gold is trading down which does not correlate 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.
In Asia the Nikkei closed down 118 points and the Aussie fell by 2 points but the rest of Asia closed higher. As of this writing all of Europe is trading mixed as the German DAX is up but the rest of Europe is lower.
Possible challenges to traders today is the following:
- Core Retail Sales is out at 8:30 AM EST. This is major.
- Retail Sales is out at 8:30 AM EST. This is major.
- Import Prices is out at 8:30 AM EST. This is major.
- Treasury Secretary Nominee Lew speaks at 10 AM EST. This is major.
- Business Inventories are out at 10 AM EST. This is not considered major.
- Crude Inventories are out at 10:30 AM EST. This will move the oil markets.
- FOMC Member Bullard speak at 11:10 AM EST. This is not considered major.
- 10 Year Bond Auction starts at 1 PM EST. This could effect afternoon trading.
Yesterday we said our bias was to the long side and the net result was the Dow closed 48 points higher. Not only did it close higher but breached the 14,000 mark. It only goes to show you that anything can happen in a volatile market. Today market correlation is calling for a lower open and our bias is toward the long side. Here's why. The markets are nearly correlated to the upside with the only missing ingredient being Gold. If Gold were trading higher I would say we had a completely correlated market. Additionally the USD is trading lower which is conducive to a bullish stance. As of this writing Europe is trading mixed and has been moving in and out of positive territory all morning. Could this change? Of course. Remember anything can happen in a volatile market.
Yesterday we said our bias was towards the long side because both the USD and Bonds were trading lower and Gold did not commit to any one direction. Additionally the indices were pointed higher as well as crude. Here's a short 2 minute video on why our bias was higher:
Last night the President delivered the long awaited State of the Union address. As expected the President discussed the Economy, Jobs, Women's Rights, the war in Afghanistan and Gun Control. I must say the President has extraordinary oratory skills as towards the end of the speech even some Republicans stood up and clapped. That's highly unusual. Obama also talked about the sequester cuts about to take place on March 1st. Just so you're aware of what will be cut if Congress does not come to terms on this issue:
- Small Business
- FDA Food Inspections
- Research and Development
- FBI and law enforcement
Obama is looking to resurrect the Jobs Bill that he tried to get passed in 2011 to rebuild the infrastructure of the United States. Additionally he called on Congress to up the minimum wage to $9 an hour and clearly members of the GOP weren't happy about that at all.
After the State of the Union address as expected Senator Marco Rubio gave the rebuttal. Marco Rubio is supposedly the "heir apparent" for the GOP and is considered a front runner in 2016. He gave a condensed version of what he delivered this past summer at the GOP Convention. He appeared nervous and his taking a drink of water during the rebuttal tells me that he's not ready for prime time yet. He didn't really mention spending cuts , he called for an end to further spending. Again, he's a moderate Republican. I can't comment on Rand Paul as I didn't hear his rebuttal. But I'm sure he didn't have many kind things to say about Obama or the Democrats.
This is the new and improved GOP in action. They won't outwardly hold the country hostage as they did in 2011; they'll set up events such that it works out that way. So come March 1st they'll just innocently sit back and say "oh well we have to cut, it's the law you know." I've been wondering why they're so eager to extend the debt ceiling. They're waiting for a tsunami of events to occur such that there will be no other alternative. 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. The Smart Money is loving it because thus far they made any issues about March 1st or sequester spending cuts. Will the markets survive? of course. But it also seems to me that the GOP knows all too well that Congress will only act when it has to. In other words, they know that DC drags it's feet when it comes to spending cuts and they've setup events such that it has to happen.
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 but 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.
Here's a video on what happened last Thursday after the ECB:
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's crude number hit the 97.79 a barrel mark. So it would seem that at the present time crude's support is at 92.00 with resistance at 98.00 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.
- Sequester spending cuts to commence around early March
- Debt Ceiling in the May 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, consider doing so after 10 AM EST when the markets give us better direction. Also be aware that this afternoon at 1 PM EST the 10 Year Bond Auction starts and this has the capacity to move the markets in the afternoon. 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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