Good Morning Traders,
As of this writing 4:30 AM EST, heres what we see:
US Dollar: June USD is Down at 96.520.
Energies: May '19 Crude is Down at 63.39.
Financials: The Jun 30 year bond is Down 9 ticks and trading at 146.25.
Indices: The June S&P 500 emini ES contract is 40 ticks Higher and trading at 2919.50.
Gold: The June Gold contract is trading Down at 1287.30 Gold is 40 ticks Lower than its close.
This is not a correlated market. The dollar is Down- and Crude is Down- which is not normal and the 30 year Bond is trading Lower. The Financials should always correlate with the US dollar such that if the dollar is lower then bonds should follow and vice-versa. The S&P is Higher and Crude is trading Lower which is correlated. Gold is trading Lower which is not correlated 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.
At this hour all of Asia is trading Higher. Currently all of Europe is trading Higher as well.
Possible Challenges To Traders Today
- Capacity Utilization Rateis out at 9:15 AM EST. This is major.
- Industrial Production m/m is out at 9:15 AM EST. This is major.
- NAHB Housing Market Index is out at 10 AM EST. This is major.
We've elected to switch gears a bit and show correlation between the 30 year bond (ZB) and The YM futures contract. The YM contract is the DJIA and the purpose is to show reverse correlation between the two instruments. Remember it's liken to a seesaw, when up goes up the other should go down and vice versa.
Yesterday the ZB made a major move at around 8 AM EST. The ZB hit a Low at around that time and the YM hit a High. If you look at the charts below ZB gave a signal at around 8 AM EST and the YM was moving Lower at the same time. Look at the charts below and you'll see a pattern for both assets. ZB hit a Low at around 8 AM and the YM was moving Lower at the same time. These charts represent the newest version of MultiCharts and I've changed the timeframe to a 15 minute chart to display better. This represented a Long opportunity on the 30 year bond, as a trader you could have netted about a dozen ticks per contract on this trade. Each tick is worth $31.25. Please note: the front month for the ZB contract is now June, 2019
Charts Courtesy of MultiCharts built on an AMP platform Click on an image to enlarge it.
|ZB - June, 2019 - 4/15/19 |
|YM - June 2019- 4/15/19 |
Yesterday we gave the markets an Upside bias however the markets had other ideas as the Dow dropped 28 points and the other indices lost ground as well. Today we aren't dealing with a correlated market and our bias is to the Upside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Initially we saw the prospect of an upside day yesterday. This was because both the USD and the bonds were trading Lower yesterday morning. However this changed as the morning wore on and as we say each and every day "this too can change". Earnings season has officially kicked off and already the analysts and pundits are clamoring to determine what kind of an earnings season it will be. From our perspective we take one day at a time and use our market correlation rules to determine overall direction.
On Thursday, April 5th (of last year) we had the honor and privilege to be interviewed by David Lincoln on his You Tube channel. David is a floor trader for the options markets. If you listen to this interview, you will enjoy it. To view the interview go to:
Just so you understand, Market Correlation is Market Direction. It attempts to determine the market direction for that day and it does so by using a unique set of tools. In fact TradersLog published an article on this subject that can be viewed at: http://www.traderslog.com/market-correlation-is-market-direction/
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 our bias is to the Upside. Could this change? Of course. In a volatile market anything can happen. We'll have to monitor and see.
As I write this the crude markets are Lower and the S&P is Higher. This is normal. Crude and the markets are now reverse correlated such that when the markets are rising, crude drops and vice-versa. Yesterday May crude dropped to a low of $63.03 It would appear at the present time that crude has support at $63.00 a barrel and resistance at $65.00. Remember that crude is the only commodity that is reflected immediately at the gas pump. Please note that the front month for crude is now May. Last month OPEC met once again to cut production but the price of crude is starting to climb. The question is if whether this is temporary or something more permanent.
If trading crude today consider doing so after 10 AM EST when the markets give us better direction.
Crude Oil Is Trading Lower
Crude oil is trading Lower and the S&P is Higher. This is normal. Crude typically makes 3 major moves (long or short) during the course of any trading day: around 9 AM EST, 11 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. 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. To fully capitalize on this newsletter it is important that the reader understand how the various market correlate. More on this in subsequent editions