Market Overview

Market Tea Leaves - Big Banks Day

Pre-Market Global Review - 1/16/13 - Big Banks Day

 

 

 

 

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 16, 2013

Good Morning Traders,
As of this writing 4:20 AM EST, here’s what we see:

US Dollar –Up at 79.860 The US Dollar is up 28 ticks and is trading at 79.860.
Energies – February Oil is down at 93.13.
Financials – The 30 year bond is up 10 ticks and is trading at 146.09.
Indices – The March S&P 500 emini ES contract is down at 1460.75 and is down 19 ticks.
Gold – The February gold contract is trading down at 1678.00 even and is down 59 ticks.


Conclusion
Finally we have 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 up which correlates with the US dollar trading up. 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 higher. Gold is trading down which correlates 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 closing lower. As of this writing, all of Europe is trading lower.


Possible challenges to traders today is the following:


- Core CPI is out at 8:30 AM EST. This is a major report.
- CPI is out at 8:30 AM EST. This is major.
- TIC Long Term Purchases are out at 9 AM EST. This is not considered major.
- Capacity Utilization Rate is out at 9:15 AM EST. This is not considered major.
- Industrial Production Rate is out at 9:15 AM EST. This is not considered major.
- NAHB Housing Market Index are out at 10 AM EST. This is major.
- Crude Oil Inventories are out at 10:30 AM EST. This will move the crude market.
- Fed Beige Book is out at 2 PM EST. This is major.

 

Yesterday the Dow closed 28 points higher. However it did not start out that way, the Dow went down about 30 points before regaining strength. Today however we have 4 major economic reports and the Fed Beige Book is out in the afternoon. Today market correlation is calling for a lower open. Could this change? Of course. Remember anything can happen in a volatile market.

As a follow up to our story from yesterday concerning Chairman Bernanke's comments, FOMC member Rosengren spoke yesterday at 8 AM EST and apparently he is a dove. By that we mean that is is defending the FOMC's low interest rate policy. For those of you who don't remember or want a recent example of interest rate hikes; in the late 1990's the FOMC decided to raise interest rates. At the time the tech sector was driving the US economy. The reason why they did so is because they were concerned about inflation. They pointed to an antiquated method of determining this called the "Phillips Curve". Then Chairman Greenspan decided that the US economy was growing too fast and decided to put the brakes on by increasing the cost of borrowing aka the Federal Funds Rate or more commonly called the overnight rate. When he did this he cut off an entire industry at the knees and by doing so plunged the US economy into a downturn (recession of 2001) which no one realized what happened until 6 months later. By then 9/11 happened and really threw the US into recession. Bernanke knows this and he knows that if the FOMC decides to raise the overnight rate prematurely, this economy will go into recession.

 

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. On another issue, the President is determined to do something about gun control. At some point he will discuss this and possibly reveal what he plans to do concerning this issue. Governor Cuomo of New York has already signed into state law the strictest gun control laws in the nation. Of course, the GOP is up in arms about this and are equally determined to combat any measure of gun control. The extreme members of the right wing are threatening Civil War. I wonder who's going to pay their Social Security benefits if they do so?

As readers are probably aware I don't trade equities. However today 3 of the largest financial institutions will be reporting. Goldman Sacks (GS) will be reporting before the market opens, JP Morgan (JPM) and US Bank (USB). 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:

http://www.tradethemarkets.com/public/StocksthatBeatEarnings80oftheTime.cfm

 

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:

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.

As an add-on benefit, Carl Weiss has also created a 5 minute video on HFT and Algo Trading; it can be viewed at:

http://www.youtube.com/watch?v=yhE2UKAeeC0

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. 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.

Future Challenges:

- Sequester spending cuts to commence around early March
- Debt Ceiling also around the early March time frame.

 

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 today then consider doing it after 10:30 AM EST when the crude inventory numbers are released and the market gives us direction. Also, I ould be careful trading in the afternoon as the Fed Beige Book has been a proven market mover. 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.

Posted-In: Trading Ideas

 

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