The Bears Roar

 

Good Morning Traders,

As of this writing 5:25 AM EST, here’s what we see:

US Dollar: Jun '21 USD is Up at 90.260.

Energies: Jun'21 Crude is Up at 65.78.

Financials: The June '21 30 year bond is Up 7 ticks and trading at 157.05.

Indices: The June'21 S&P 500 emini ES contract is 37 ticks Lower and trading at 4137.25. 

Gold: The June'21 Gold contract is trading Down at 1833.70.  Gold is 24 ticks Lower than its close.

Initial Conclusion

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 Lower and Crude is trading Higher which is correlated. Gold is trading Lower which is  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.   Asia is trading Mixed at this time with half the exchanges Higher and the other half Lower.  Europe is trading Mixed as well. 

Possible Challenges To Traders Today:

  • CPI is out at 8:30 AM EST.  This is Major.
  • Core CPI is out at 8:30 AM EST.  This is Major.
  • FOMC Member Clarida Speaks at 9 AM EST.  This is Major.
  • Crude Oil Inventories are out at 10:30 AM EST.  This is Major.
  • FOMC Member Bostic Speaks at 1 PM EST.  This is Major.
  • 10 Year Bond Auction Starts at 1 PM EST.  This is Major.
  • Federal Budget Balance is out at 2 PM EST.  This is Major.


Bias
 

Yesterday we gave the markets a Neutral bias as we saw no correlation yesterday morning.  All instruments were pointed Lower and whenever you have a situation where all instruments are Lower or Conversely all instruments are Higher, there is no correlation.  Hence the Neutral bias.  The Dow closed Lower by 474 points and the other indices closed Lower as well.  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 when we first viewed the markets we knew it wouldn't be an ordinary day as all the instruments we use for Market Correlation purposes were pointed Lower.  Could it be the cyberattack on the Colonial Pipeline?  Probably but ironically enough crude oil was relatively stable yesterday pricewise.  Sometimes the markets move with the expectation that something will happen, even if it doesn't.  This is liken to the adage "buy the rumor, sell the news."  Of course we'll know better today after Crude Oil inventories are released.  In other news the Jolts Jobs openings cam in at 8.12 million versus 7.50 million expected.

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:

https://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 Higher and the S&P is Lower. This is normal.  Crude and the markets are now reverse correlated such that when the markets are rising, crude drops and vice-versa.  Yesterday Jun crude dropped to a low of 63.68.  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 June.  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 current situation prices are on the rise as no one is quite certain as to the effects of the cyberattack yet.  Please be advised that the new contract month for crude is now Jun '21.

If trading crude today consider doing so after 10:30 AM when the inventory numbers are released and the markets give us better direction.

Crude Oil Is Trading Higher

Crude oil is trading Higher and the S&P is Lower. 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 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, you’ll also receive our daily Market Bias video that is only available to subscribers.