Market Tea Leaves - Uncorrelated Market
Pre-Market Global Review - 1/23/13 - Uncorrelated Market
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 23, 2013
Good Morning Traders,
As of this writing 4:40 AM EST, here’s what we see:
US Dollar –Down at 79.895 The US Dollar is down 78 ticks and is trading at 79.895.
Energies – March Oil is down at 96.59.
Financials – The 30 year bond is up 3 ticks and is trading at 146.04.
Indices – The March S&P 500 emini ES contract is down at 1487.00 even and is down 10 ticks.
Gold – The February gold contract is trading down at 1691.80 and is down 13 ticks.
This is not a correlated market. The dollar is down- and oil is down- which not is normal and the 30 year bond is trading up fractionally which does not correlate 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 with the US dollar trading lower. Gold is trading down which again does not correlate 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.
Withe the exception of the Shanghai and Singapore indices, the rest of Asia closed lower. As of this writing London and Frankfurt are trading higher with the rest of Europe trading lower.
Possible challenges to traders today is the following:
- HPI is out at 9 AM EST. This will move the markets today.
- Lack of any other major economic news.
Yesterday we said our bias was towards the long side. The net result? The Dow closed 63 points higher. It only goes to show you that anything can happen in a volatile market. Today market correlation is calling for a lower open. The disturbing fact for me is that the indices and gold should be trading higher. As of this writing, they are not. I suspect that this plus the lack of any major economic news calls for a lower open. Could this change? Of course. I would never underestimate the power of the USD to move markets. Remember anything can happen in a volatile market.
Monday marked the beginning of President Obama's second term in office. He spoke about defending entitlements in his inauguration address. No doubt, this will not make the GOP very happy. In fact on Friday members of the GOP met in Virginia to discuss strategy going forward. They called for a continuation of the present budget deficit for another 90 days or 3 months. This would mean that bills will get paid, but they won't wrestle the debt ceiling. No doubt this will buy them time to figure out what their strategy will be going forward. The GOP has had alot of bad press as of late. They lost not only the presidential election but a number of Senate and House seats. In addition during the fiscal cliff they made the global markets hold their breath as in fact we went over the cliff briefly. They also held up aid to victims of Hurricane Sandy and now appear to be siding with the NRA to combat this administrations' efforts to introduce gun control in the United States. This is an issue that any parent in the US is concerned about and for a good reason. Clearly they have been on the wrong side of every issue that is meaningful to most Americans. It isn't clear yet if whether or not the administration is going to take them up on their offer to extend for another 3 months. In my opinion, I don't think they will. I think the Democrats want some finality to this issue.
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. But I suspect that the GOP wants to extend for the very purpose of keeping uncertainty and therefore fear alive. They know the markets are fickle and the longer the issue remains alive the more uncertainty will be created.
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. Could this change? Of course. We could have an excellent House Price Index number that could in fact drive the markets higher. 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.
Yesterday, January 22nd Carl and I came to the same conclusion concerning where the market would open and where they would close. As readers of this newsletter know I generally come to my conclusions early in the morning at around 5:30 AM EST. Carl has created a short video on how this happened that worth watching. It can be viewed at:
As I write this the crude markets are trading lower and the US Dollar is declining. 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 exceeded the 96.00 a barrel mark. So it would seem that at the present time crude's support is at 92.00 with resistance at 97.00 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 also around the early March time frame.
Crude oil is trading lower and the US Dollar is declining. This is not 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 9 AM EST when the economic news is released and 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.