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Market Tea Leaves - Futures Rollover

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Pre-Market Global Review - 1/17/13 - Futures Rollover

 

 

 

 

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 17, 2013

Good Morning Traders,
As of this writing 4:25 AM EST, here’s what we see:

US Dollar –Down at 79.700 The US Dollar is down 154 ticks and is trading at 79.700.
Energies – March Oil is up at 94.83.
Financials – The 30 year bond is down 12 ticks and is trading at 145.23.
Indices – The March S&P 500 emini ES contract is up at 1466.25 and is up 3 ticks.
Gold – The February gold contract is trading down at 1680.60 even and is down 26 ticks.


Conclusion
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 up with the US dollar trading lower. Gold is trading down which 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.

Asia closed mixed with the Aussie, Nikkei and India markets trading higher but the rest of Asia closed lower. As of this writing, with the exception of the German Dax index the rest of Europe is trading higher.


Possible challenges to traders today is the following:


- Building Permits are out at 8:30 AM EST. This is a major report.
- Unemployment Claims are out at 8:30 AM EST. This is major.
- Housing Starts are out at 8:30 AM EST. This is major.
- Philly Fed Manufacturing Index is out at 10 AM EST. This is major.
- Natural Gas Inventories are out at 10:30 AM EST. This will move the Nat Gas market.


Yesterday we mentioned that we weren't dealing with a correlated market. The net result? The Dow closed 24 points lower. Today however we have 4 major economic reports and we have contract rollover for certain futures commodities. You'll notice that I now list March Crude as opposed to February. This is because March is now cosidered the front month. This lends another level of volatility as a trader could still trade the February contract but it is not advisable. Today market correlation is calling for a lower open but our bias is towards the long side. The reason for this is because the USD is currently trading lower as are the Bonds, additionally Europe is mainly trading up. The missing ingredient is Gold. Gold is trading lower when it should be trading higher. If Gold starts to trade higher then we will have a correlated market to the long side. Could this change? Of course. Remember anything can happen in a volatile market.

Yesterday the FOMC released a less than stellar Beige Book report that showed modest growth. Holiday Sales were below expectation with weak manufacturing growth and you wonder why the Fed won't raise interest rates? Bernanke and other forward thinking members of the FOMC know that if they raise prematurely this will crush an already fragile economy. What does anyone think will happen to auto sales as a mainstay of the US economy if interest rates go up? Auto Sales will drop off the side of a cliff as people who might have bought a car will hang on to their clunker for a few more years.

 

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. In fact Vice-President Biden has already reported to the President on what should be done. He is calling for increased background checks, a ban on military style assault weapons with less bullets per clip. Of course, the NRA (and therefore the GOP) are 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 Bank of America reports today and are of course considered a banking leader. Goldman Sacks and JP Morgan reported yesterday and gave a pretty good report but it wasn't to drive the markets higher. 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 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. 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. Be very careful trading this commodity today. Today is futures rollover and lends a new wrinkle of volatility. As a case-in-point this morning the front month (March) was trading close to $95 a barrel but the previous month (February) wasn't. At some point the front month will "come down to earth" so to speak. But as a trader you wouldn't want to be caught in that crossfire. 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.

Posted-In: Futures Markets Trading Ideas

 

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