Good Morning Traders,
As of this writing 5:05 AM EST, heres what we see:
US Dollar: Dec USD is Up at 97.855.
Energies: Oct '19 Crude is Up at 58.51.
Financials: The Dec 30 year bond is Up 5 ticks and trading at 160.21.
Indices: The Dec S&P 500 emini ES contract is 11 ticks Higher and trading at 3010.75.
Gold: The Dec Gold contract is trading Up at 1513.00. Gold is 68 ticks Higher than its close.
This is not a correlated market. The dollar is Up+ and Crude is Up+ which is not normal and the 30 year Bond is trading Higher. 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 Higher which is not correlated. Gold is trading Higher which is not correlated 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.
At this time all of Asia is trading Higher with the exception of the Hang Seng which is trading Lower at this time. Currently Europe is trading Mixed with about half the exchanges trading Higher and the other half Lower.
Possible Challenges To Traders Today
- FOMC Member Williams Speaksat 8:15 AM EST. This is major.
- FOMC Member Rosengren Speaksat 11:20 AM EST. This is major.
- Lack of major economic news.
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 High at around that time and the YM hit a Low. If you look at the charts below ZB gave a signal at around 8 AM EST and the YM was moving Higher at the same time. Look at the charts below and you'll see a pattern for both assets. ZB hit a High at around 8 AM and the YM was moving Higher 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 Shorting opportunity on the 30 year bond, as a trader you could have netted about 20 plus ticks per contract on this trade. Each tick is worth $31.25. Please note: the front month for the ZB is now December. The YM contract is now at December as well and I've changed the format to Renko bars such that it may be more apparent and visible.
Charts Courtesy of MultiCharts built on an AMP platform Click on an image to enlarge it.
|ZB - December, 2019 - 9/19/19 |
|YM December 2019- 9/19/19 |
Yesterday we gave the markets a Neutral bias as we didn't see much in the way of correlation and as such the markets finished mixed. The Dow dropped 52 points, the S&P gained less than 1 point and the Nasdaq finished up 5 points. Today we aren't dealing with a correlated market and will maintain a Neutral bias.
Could this change? Of Course. Remember anything can happen in a volatile market.
Just when you thought we were all done with a Mixed market, surprise here it happens again. Yesterday morning we didn't see much in the way of correlation and as such we gave the markets a Neutral bias which means the markets could go in any direction and often does. The Dow closed Lower but the other indices either broke even or traded slightly Higher. Today we don't have much in the way of economic news. We have two FOMC members speaking, that's about it. Can they move the markets? Of course anything is possible in a volatile market....
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 Neutral. 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 Higher and the S&P is Higher. This is not normal. Crude and the markets are now reverse correlated such that when the markets are rising, crude drops and vice-versa. Yesterday Oct crude dropped to a low of $58.16. It would appear at the present time that crude has support at $58.00 a barrel and resistance at $60.00. 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 October. Both Russia and Saudi Arabia have agreed to keep production cuts in place for the next 6 - 9 months. This will artificially increase the price of crude at the pump by keeping supply low.
If trading crude today consider doing so after 10 AM EST when the markets give us better direction.
Crude Oil Is Trading Higher
Crude oil is trading Higher and the S&P is Higher. This is not 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 markets correlate. More on this in subsequent editions
Nick Mastrandrea is the author of Market Tea Leaves. Market Tea Leaves is a daily newsletter that is dedicated to your trading success. We teach and discuss market correlation. Market Tea Leaves is published daily, pre-market in the United States and can be viewed at www.markettealeaves.com. Interested in Market Correlation? Want to learn more? Signup and receive Market Tea Leaves each day prior to market open. As a subscriber, youll also receive our daily Market Bias video that is only available to subscribers.