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Market Tea Leaves - Obama Names New SEC Chief

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Pre-Market Global Review - 1/25/13 - Obama names new SEC Chief

 

 

 

 

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 25, 2013

Good Morning Traders,
As of this writing 6 AM EST, here’s what we see:

US Dollar –Down at 79.915 The US Dollar is down 92 ticks and is trading at 79.915.
Energies – March Oil is up at 96.34.
Financials – The 30 year bond is down 24 ticks and is trading at 145.03.
Indices – The March S&P 500 emini ES contract is up at 1495.50 and is up 15 ticks.
Gold – The February gold contract is trading down at 1668.50 and is down 14 ticks.


Conclusion
This is a mainly 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 up 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.

With the exception of the Shanghai and Hang Seng indices, the rest of Asia closed higher. As of this writing all of Europe is trading higher.


Possible challenges to traders today is the following:


- New Home Sales are out at 10 AM EST. This is major.
- Lack of any other major economic news.


Yesterday the Dow closed 46 points higher despite the fact that we weren't dealing with a correlated market. However the S&P closed flat and the Nasdaq closed lower. It only goes to show you that anything can happen in a volatile market. Today market correlation is calling for a lower open, however our bias is toward the long side. If Gold were trading higher, I would say this is a completely correlated market. However Gold also has an element of fear built into it. I suspect that the fear factor is nonexistent at this time. 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.

 

Yesterday it was announced that the Obama Administration has appointed Mary Jo White as the Head of the SEC. Mary Jo White is considered an expert on white collar crime and has taken on cases that no one else would have. I have no doubt that the GOP will find fault with her come appointment time as their benefactors won't like the idea of a tough SEC Head. They must have liked her predecessor Mary Schapiro as she did absolutely nothing. Creating a committee to discuss the flash crash of 2010 isn't anyone's idea of being proactive. President Obama has taken some flak as of late because no one is doing jail time after the financial meltdown of 2008. The GOP and hence the Smart Money won't like the idea of additional regulation as they want the ability to freely manipulate our hard earned capital. They've invested billions in HFT and Algo trading and want to protect their investment. If you're wondering why the markets are advancing despite the fact that they aren't correlated, look no further.

This week the GOP dominated House of Representatives passed a measure to extend the debt ceiling for 90 days. It now has to go to the Democratic controlled Senate and the President for approval. Between them I don't think it has a chance for passage but the Smart Money is loving it. They just got a 3 month reprieve from this issue but don't worry, once they realize the measure won't pass that will change. 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. Look at what happened to Apple. 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. We could have a New Home Sales number that could in fact drive the markets higher or lower. 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 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 crude almost hit the 97.00 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.

Future Challenges:

- 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, consider doing so after 10 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.

To View previous articles of Market Tea Leaves:
www.benzinga.com/author/market-tea-leaves

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: Markets Trading Ideas

 

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