Market Tea Leaves - Can Dow Regain 14,000?
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.
Indices – The March S&P 500 emini ES contract is up at 1498.00 even and is up 18 ticks.
With the exception of the Shanghai Index the rest of Asia closing lower. As of this writing all of Europe is trading higher.
Possible challenges to traders today is the following:
Yesterday Factory Orders came in at less than expected and although it wasn't a major report it was enough to drive the markets lower. We said our bias was towards the short side because historically speaking the Smart Money likes to take money off the table when the markets trade at a new high not seen in 5 years. Don't buy the nonsense about "European Worries" as was suggested yesterday. That's only to cover up what the Smart Money is doing. Additionally yesterday the markets were nearly correlated and the only thing missing was a higher index number. The indices were up fractionally yesterday, so our bias was to the short side. Today we have a different situation. The USD is only up fractionally and the indices are higher. The great thing about market correlation is that it gives you a clue as to what to look forward to. In terms of economic news we have the Non-Manufacturing PMI numbers out at 10 AM EST. Fortunately because it is non-manufacturing, I suspect the number will be good.
On the political front it appears as though the Democratic controlled Senate has decided to pass the debt ceiling extension that the GOP dominated House of Representatives passed last week. It now has to go to the President for passage. The caveat here is that Congress must approve a blueprint for the budget by April 15th or they will forfeit their pay. This I have to see. Whereas the debt ceiling talks have been put off until May 19th, sequester spending cuts will occur in the early March time frame, as scheduled. It will be interesting to see how DC will react to this. In all likelihood they'll probably put it off until the debt ceiling issue comes into play but we'll have to see. At some point this month, this will be revisited as Congress must come to some decision prior to March 1st. March 1st marks the day that automatic spending cuts come into play and the DC folks have to decide what they're going to do about it. 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 but our bias is towards the long side. Could this change? Of course. We could have a Non-Manufacturing PMI report 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:
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.
- Sequester spending cuts to commence around early March
- Debt Ceiling also around the early March (could be May if POTUS signs) time frame.
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: