Market Tea Leaves - Apple Falls

Pre-Market Global Review - 1/24/13 - Apple Falls

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 24, 2013

Good Morning Traders,

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

US Dollar –Up at 80.045 The US Dollar is up 45 ticks and is trading at 80.045.

Energies – March Oil is up at 95.60.

Financials – The 30 year bond is up 1 ticks and is trading at 146.00 even.

Indices – The March S&P 500 emini ES contract is down at 1487.25 and is down 12 ticks.

Gold – The February gold contract is trading down at 1681.30 and is down 54 ticks.

Conclusion

This is a mainly correlated market. Unfortunately it is correlated to the downside. The dollar is up and oil is up+ which not is normal and the 30 year bond is trading up fractionally which correlates with the US dollar trading up. The missing ingredient is crude which should be trading down but currently isn't. If crude were trading down then this would be a correlated market to the downside. 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.

With the exception of the Nikkei, the rest of Asia closed lower. As of this writing all of Europe trading higher.

Possible challenges to traders today is the following:

- Unemployment Claims are out at 8:30 AM EST. This is major.

- Flash Manufacturing PMI is out at 9 AM EST. This is major.

- CB Leading Indicators are out at 10 AM EST. This is not considered major.

- Natural Gas Storage is out at 10:30 AM EST. This will move the Nat Gas market.

- Crude Inventories are out at 11 AM EST. This will move the crude market.

Yesterday the Dow closed 67 points higher, despite the fact that weren't dealing a correlated market. It seems that everyone was anticipating a great Apple earnings report. 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 crude should be trading lower. As of this writing, it is not. 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 the markets were waiting and anticipating a stellar report from Apple. Unfortunately Apple disappointed; not because they had a bad report but because they did not give excellent forward guidance. Apple is and has become a bellwether for the technology industry. Let's face it. They have great products that are in high demand and are a manufacturing entity even though they don't manufacture domestically. As a result their shares dropped almost 50 dollars a share overnight and are currently trading well below $500.00 a share. Remember this is the height of earnings season and any firm that doesn't report stellar earnings with excellent forward guidance will suffer the consequences. This unto itself could move the markets lower today. But again, we'll have to see. Anything can happen in a volatile market.

As a follow up to our story concerning the debt ceiling; it appears as though the House of Representatives have passed a measure to extend the debt ceiling for another 90 days. The question is if whether or the Senate will pass this measure. I'm fairly certain that the President will veto this measure but I'm also fairly certain that the GOP wants to extend for the very purpose of prolonging uncertainty. They know that the longer the issue dwells, the worse it will be when confronted. Clearly their agenda is obstruction. I think the Democrats want some finality to this issue. Their new tactic is to attack those close to the President. Case-in-point, they're now attacking Hillary Clinton for the Benghazi attacks. But Hillary is not a wallflower and she won't tolerate any ridiculous nonsense.

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 Unemployment Claims 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:

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 advancing. 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 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 advancing. 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 11 AM EST when the crude inventory numbers are 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.