How Great Thou Art

How Great Thou Art

Good Morning Traders,

As of this writing 5:15 AM EST, heres what we see:

US Dollar: Dec USD is Up at 98.190.

Energies: Nov '19 Crude is Down at 56.26.

Financials: The Dec 30 year bond is Up 16 ticks and trading at 157.16.

Indices: The Dec S&P 500 emini ES contract is 61 ticks Lower and trading at 3076.75.

Gold: The Dec Gold contract is trading Up at 1466.60. Gold is 129 ticks Higher than its close.

Initial Conclusion

This is not a correlated market. The dollar is Up+ and Crude is Down- which is 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 Lower and Crude is trading Lower 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 Lower. Currently all of Europe is trading Lower as well.

Possible Challenges To Traders Today

  • CPI m/m is out at 8:30 AM EST. This is Major.
  • Core CPI is out at 8:30 AM EST. This is Major.
  • Fed Chair Powell Testifies at 11 AM EST. This is Major.
  • Federal Budget Balance is out at 2 PM EST. This is Major.

Treasuries

We've elected to switch gears a bit and show correlation between the 30 year bond (ZB) and The S&P futures contract. The S&P contract is the Standard and Poor's 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 S&P hit a Low. If you look at the charts below ZB gave a signal at around 8 AM EST and the S&P moved 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 S&P was moving Higher shortly thereafter. 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 a dozen ticks per contract on this trade. Each tick is worth $31.25. Please note: the front month for the ZB is now December. The S&P 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 - 11/12/19
S&P December 2019- 11/12/19

Bias

Yesterday we gave the markets a Neutral bias as we didn't see much evidence of market correlation in terms of direction, hence the neutral bias. The Dow was flat with absolutely no gain whatsoever, the S&P gained 5 and the Nasdaq gained about 22 points. Today we aren't dealing with a correlated market and our bias is to the Downside.

Could this change? Of Course. Remember anything can happen in a volatile market.

Commentary

Yesterday at 12 noon EST we heard President Trump address a crowd at an economic club in New York City. Everyone was expecting solid news on the China Trade War, instead what they received was a statement of everything Trump did for the economy since his tenure as President. He spared no kind words for either the Obama or Bush administrations and even focused on the Federal Reserve, claiming that this economic "miracle" would have happened sooner if the Fed had been more cooperative and lowered interest rates faster. When asked about a trade agreement with China, all the President said was "close", we're close to coming to agreement. The markets in turn although closing Higher, didn't roar over this. It is still unclear as to what the next steps will be going forward.

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:

ttps://youtu.be/U7gh9oanjIE

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 Downside. 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 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 Dec crude dropped to a low of $56.54. It would appear at the present time that crude has support at $56.00 a barrel and resistance at $58.00. 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 December. 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 Lower

Crude oil is trading Lower and the S&P is 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. 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.