Good Morning Traders,
As of this writing 3:45 AM EST, here?s what we see:
US Dollar: Jun. USD is Down at 96.635.
Energies: Jun Crude is Down at 47.89.
Financials: The Sept 30 year bond is Down 1 tick and trading at 154.30.
Indices: The June S&P 500 emini ES contract is 1 tick Lower and trading at 2430.50.
Gold: The Aug gold contract is trading Down at 1295.10. Gold is 24 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 indices are Down and Crude is trading Down which is not correlated. Gold is trading Down 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 mainly Higher with the exception of the Hang Seng and Aussie exchanges which are trading higher. As of this writing all of Europe is trading Higher with the exception of the German Dax which is trading Lower at this hour.
Possible Challenges To Traders Today
? Crude Oil Inventories is out at 10:30 AM EST. This is major.
? Consumer Credit m/m is out at 3 PM 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 it?s move at around 10:30 AM EST after the 10 AM economic news was released. 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 10:30 AM 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 10:30 AM and the YM hit a high. These charts represent the newest version of Trend Following Trades and I?ve changed the timeframe to a 30 minute chart to display better. This represented a long opportunity on the 30 year bond, as a trader you could have netted about 15 ticks per contract on this trade. Each tick is worth $31.25. We added a Donchian Channel to the charts to show the signals more clearly. Please note that the front month for the ZB contract is now September, 2017.
Charts Courtesy of Trend Following Trades built on a NinjaTrader platform Click on an image to enlarge it.
ZB ? Sept, 2017 ? 6/6/17
YM- June, 2017 ? 6/6/17
Yesterday we gave the markets a downside bias and the markets didn?t disappoint. The Dow dropped 46 points and the other indices lost ground as well. Today we aren?t dealing with a correlated market and our bias is neutral.
Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday morning we gave the markets a downside bias based on our rules of Market Correlation. The Bonds and Gold were trading higher yesterday morning and this does not bode well for an upside day hence the downside bias. On another note a colleague mentioned Eisenhower?s push for the Interstate Highway System. I mentioned that he probably got the idea after seeing the German Autobahn towards the end of WW2. It then dawned on me that yesterday was June 6th, 73 years after D-Day. If you know a member of the Greatest Generation, thank them. Whether they are British, Canadian or American it doesn?t really matter as they were all a part of the Great Crusade to free the world from the tyranny of dictatorship. We can only imagine what something like that might have been like but remember that these veterans bought us the freedom that we enjoy today.
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:
Many of my readers have been asking me to spell out the rules of Market Correlation. Futures Magazine has elected to print a story on the subject matter and I must say I?m proud of the fact that they did as I?m Author of that article. I encourage all viewers to read that piece as it spells out the rules of market correlation and provides charts that show how it works in action. The article is entitled ?How to Exploit and Profit from Market Correlation? and can be viewed at:
View article on Futures Mag
As a follow up to the first article on Market Correlation, I?ve produced a second segment on this subject matter and Futures Magazine has elected to publish it. It can be viewed at: View article on Futures Mag
Many subscribers have asked what is the best time of day to trade? A recent article published by Futures Magazine may shed some light on the subject:
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 Lower and the futures are trading Lower. 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 July Crude dropped to a low of $47.09 a barrel. It would appear at the present time that crude has support at $46.61 a barrel and resistance at $48.56. This could change. We?ll have to monitor and see. 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 July. Last December and after two years OPEC finally decided to cut production but the price crude is still tame (as of this writing). What they haven?t figured out yet is that the more countries like Canada and the US produce their own crude (by whatever means) the more crude prices will fall. The move by OPEC to cut production in an attempt to pump up prices is liken to ?too little, too late? as the world doesn?t need their oil as much as they used to. Power equipment that used to need oil (Grass Trimmers, Lawn Mowers, Autos) now run on battery power and Canada and the United States are producing more of their own crude. As an update to this the non-OPEC countries have come to an agreement to unilaterally cut production across the board and this has served to temporarily raise crude prices. We?ll have to see if and how long this lasts?
If trading crude today consider doing so after 10:30 AM EST when the inventory numbers are released and the markets gives us better direction.
It seems that every week the US is facing a new disaster. a few weeks ago it was North Korea, four weeks ago it was the Healthcare bill that barely passed the Republican controlled House of Representatives and three weeks ago it was Trump firing FBI Director James Comey. We said immediately after the election that the danger with this President is he will run this country like a game show (the Apprentice) and anyone who doesn?t ?cut it? will be fired. Now on the outside that may seem positive; after all isn?t it high time that the government runs like a business? The problem here is this president (because he has no political background) makes the wrong decisions at the wrong time. Firing the man who?s investigating your campaign will only lead people to believe (besides being an obstruction to justice) that this is a coverup and what is he trying to hide? And then the very next day announcing in an interview with Lester Holt that it was your idea all along isn?t helping your cause. This President believes he is above the law and answers to no one. He believes he can do what he want with no consequences and of course if it doesn?t work according to plan he?ll just blame the Democrats. The market is starting to reflect this as the ?Trump Trade? is no longer in vogue. What disaster awaits us this week? Only time will tell?
As an update to this former FBI Director James Comey will testify before a Congressional Committee tomorrow to discuss what has actually transpired and to provide his assessment on the Russian issue relative to the 2016 election.
TradersLog has just published an article entitled ?So You Think You Can Trust Your Elected Officials?? That article can be viewed at:
Crude Oil Is Trading Lower
Crude oil is trading Lower and the markets are Lower. 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. 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 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, you?ll also receive our daily Market Bias video that is only available to subscribers.