Good Morning Traders,
As of this writing 5:25 AM EST, heres what we see:
US Dollar: Sept USD Up at 93.360.
Energies: Sept'20 Crude is Down at 41.80.
Financials: The Sept'20 30 year bond is Up 19 ticks and trading at 178.13
Indices: The Sept S&P 500 emini ES contract is 65 ticks Lower and trading at 3351.75.
Gold: The Aug'20 Gold contract is trading Down at 1957.00 Gold is 138 ticks Lower than its close.
This is not a correlated market. The dollar is Down- and Crude is Down- which is not normal but 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 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 time Asia is trading Mixed with half the exchanges Higher and the other half Lower. Currently all of Europe is trading Lower.
Possible Challenges To Traders Today:
- Core Retail Sales is out at 8:30 AM EST. This is Major.
- Retail Sales is out at 8:30 AM EST. This is Major.
- Prelim Nonfarm Productivity q/q is out at 8:30 AM EST. This is Major.
- Prelim Unit Labor Costs q/q is out at 8:30 AM EST. Major.
- Capacity Utilization Rate is out at 9:15 AM EST. This is Major.
- Industrial Production m/m is out at 9:15 AM EST. This is Major.
- Prelim UoM Consumer Sentiment is out at 10 AM EST. Major
- Prelim UoM Inflation Expectations is out at 10 AM EST. Major.
- Business Inventories m/m 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 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 it's move at around 8:15 AM EST. The ZB hit a High at around that time and the S&P moved Higher. If you look at the charts below ZB gave a signal at around 8:15 AM EST and the S&P moved Higher at around the same time. Look at the charts below and you'll see a pattern for both assets. ZB hit a High at around 8:15 AM EST 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 30 ticks per contract on this trade. Each tick is worth $31.25. Please note: the front month for the ZB is now Sept '20. The S&P contract has been changed to Sept '20. 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 platformClick on an image to enlarge it.
|ZB- Sept 2020- 8/13/20|
|S&P - Sept 2020 - 8/13/20|
Yesterday we gave the markets a Neutral bias as we didn't see much in the way of correlation Thursday morning. The Dow closed 80 points Lower, the S&P 7 points Lower but the Nasdaq traded 31 points Higher. All in all a Mixed or Neutral day. 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.
So the Unemployment Claims numbers came out yesterday morning and they were Down from 1.1 million the week before to 963,000. These are first time filers for benefits. One would think this is positive news so the markets should have advanced, right? Earlier this week we posted an edition entitled Buy the Sizzle, Sell the News. Well the markets sold on the news as the Dow stayed in negative territory all session long to close Down 80 points. Today we have a virtual tsunami of economic reports as we have 9 of them for the US markets and all of them are major.
On Thursday April 5 (2018) 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 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 September crude dropped to a low of 42.20. Crude still hasn't returned to a sense of normalcy therefore we can't quote support and resistance numbers. 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 September. Both Russia and Saudi Arabia have agreed to keep production cuts in place for the next 6 - 9 months. This could artificially increase the price of crude at the pump by keeping supply low. However given the coronavirus situation prices are currently Lower because demand is Lower. Fewer people working, fewer people using their cars to get to work as many are working from home, etc. Please be advised that the new contract month for crude is now September.
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 atwww.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.