Posted on 05/16/2016 4:25:18 AM PDT by expat_panama
Good Morning Traders,
As of this writing 4:05 AM EST, here’s what we see:
US Dollar: Down at 94.535. The US Dollar is down 58 ticks and trading at 94.535.
Energies: June Crude is up at 46.93.
Financials: The June 30 year bond is down 7 ticks and trading at 166.16.
Indices: The June S&P 500 emini ES contract is up 6 ticks and trading at 2045.00.
Gold: The June gold contract is trading up at 1282.50. Gold is 98 ticks higher than its close.
This is not a correlated market. The dollar is down- and crude is up+ which is 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 up and Crude is trading higher which is not correlated. Gold is trading up which is 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.
Asia traded mainly higher with the exception of the Singapore and Indian Sensex exchanges. As of this writing Europe is trading mainly lower with he exception of the German Dax which is fractionally higher.
– Empire State Manufacturing Index is out at 8:30 AM EST. This is major.
– NAHB Housing Market Index is out at 10 AM EST. This is major.
– TIC Long-Term Purchases at 4 PM EST. This is not major.
Gold
We’ve elected to switch gears a bit and show correlation between Gold 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 Gold made it’s move at around 8:45 AM EST after the 8:30 news items came out. The YM hit a high at around that time and Gold hit a low. If you look at the charts below the YM gave a signal at around 8:45 AM EST, while Gold also gave a signal at just about the same time. Look at the charts below and you’ll see a pattern for both assets. The YM hit a high at around 8:45 AM EST and Gold hit a low. These charts represent the latest version of Trend Following Trades and I’ve changed the timeframe to a 15 minute chart to display better. This represented a long opportunity on Gold, as a trader you could have netted about 40 plus ticks per contract on this trade. Each tick is worth $10. We added a Donchian Channel to the charts to show the signals more clearly.
Charts Courtesy of Trend Following Trades built on a NinjaTrader platform
Click on an image to enlarge it.
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| Gold – June, 2016 – 5/13/16 |
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| YM- June, 2016 – 5/13/16 |
On Friday we gave the markets a downside bias as both the Bonds and Gold were pointed higher and this usually signals a downside day. The Dow dropped 185 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.
On Friday we witnessed a virtual tsunami of economic reports, most of which either met or exceeded expectation. Despite this fact the markets decided to make a u turn and drop dramatically. The Dow dropped by 185 points and the other indices lost ground as well. Retail Sales and Core Retail Sales up, PPI down (which is good for consumer prices), Consumer Sentiment up. You would think that this is a recipe for an upside day yet the markets fell. We told our subscribers as early as 5 AM EST that the markets would drop and all we did was to follow our rules of market correlation. Another key to this puzzle is the perceived, underlying fear that with good eco news the Fed has more of a bias towards hiking rates. However with the Job Numbers as tame as they were on Friday the 6th, we don’t see that in the cards. But as in all things, time will tell…
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 futures are trading 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. On Friday June Crude dropped to a low of $45.75 a barrel. It would appear at the present time that crude has support at $45.84 a barrel and resistance at $47.25. 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. On Friday, December 4th OPEC reiterated their stance not to cut production. OPEC appears to be adamant about keeping production where it is as they believe that oil will rebound. 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.
A month ago OPEC reiterated it’s stance not to cut production. The problem? Iran refused to cut production (as they are recently recovering from sanctions levied against them) and therefore no agreement was made. Could this change in the future? Of course, anything can happen in a volatile market.
If trading crude today consider doing so after 10 AM EST when the markets gives us better direction.
Given that it is now 2016 and an election year, the focus will be on who gets nominated for each party and of course who wins the election. The emphasis will be more on the GOP side as they have far more candidates than do the Democrats.
Given that Donald Trump has won Indiana and Ted Cruz and John Kasich have dropped out, it would appear that Mr. Trump is the defacto GOP nominee for the Presidency.
The Speaker of the House Paul Ryan is starting to have dialogue with Donald Trump but still hasn’t openly endorsed him as of yet. Mr. Ryan spoke yesterday about uniting the Republican Party and claimed 70% of Americans aren’t happy with the direction that the United States is taking.
Crude oil is trading higher and the markets are advancing. 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.
Hey guys! The writer said he doesn't "trade equities" but since many of us do the update there is that the major indexes have now punched below their 50 day moving averages (very bearish) and the Barchart heat map says they'll be falling even further.
In the pundit news Trump Is Right: Here's Tax Cuts Work quotes Hillary as saying Trump will cut taxes on the rich but in his own words Trump: I'm all for RAISING TAXES on the rich - YouTube. I get a headache when my thinking is that if maybe Hillary's the honest one and it means we should vote for Trump.
*BUMP* for later.
Busy selling possessions this week, turning them into assets v. liabilities with a few charitable tax write-offs thrown in there for good measure! ;)
IOW, I’m having a Garage Sale, LOL!
The markets are nearly impossible to read; the old ways of analysis are now invalid to a point, due to the global Feds and pumping up currency and driving down AU. One cannot leave politics out of any investment analysis as it has caused old correlations to be bunk. AU stays low while currencies are at war. It makes no sense. Favored stocks of the globalists and cronies (e.g., fascist partners like Facebook, Google, et al) remain just that, favored. I am not an investment agnostic person, it is hard to make $ as I simply will not buy companies who hate God and sell out the US on every turn.
Anyway, some folks here have poo-pooed an article I posted by John Mauldin, “Life on the Edge”; it is a good read.
That is a good move. I sold all NASDAQ stuff recently and am left with a few commodities (can’t afford to take the losses on them) and some staples like PG. I hold also no muni bonds as I trust no municipalities anymore.
No, I really AM having a Garage Sale, LOL!
I’m also a major Gold Bug...which makes some people here NUTZ, but I yam what I yam. :)
Put your hubby in a Monty Hall LET’S MAKE A DEAL! t-shirt....for those old enough to know who he is and remember LMAD!
Wish I was there...
:) Good idea! We used to watch that show all the time when I was a kid.
:)
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