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Eco News Pumps Up Markets

Wednesday, November 16, 2016 3:39
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(Before It's News)

Eco News Pumps Up Markets

Good Morning Traders,
As of this writing 4:10 AM EST, here’s what we see:
US Dollar: Dec. USD is Up at 100.270.
Energies: December Crude is Down at 45.41.
Financials: The Dec 30 year bond is Down 9 ticks and trading at 154.00.
Indices: The December S&P 500 emini ES contract is 9 ticks Lower and trading at 2177.00.
Gold: The December gold contract is trading Up at 1227.40. Gold is 29 ticks Higher than its close.
Initial Conclusion

This is not a correlated market. The dollar is Up+ and crude is Down- which is normal but the 30 year bond is trading Down. 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 Up 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.
Asia traded mixed with half the exchanges Higher and the other half Lower. As of this writing Europe is also trading mixed with half the exchanges Higher and the other half Lower.

Possible Challenges To Traders Today

– Core PPI is out at 8:30 AM EST. This is major.
– PPI is out at 8:30 AM EST. This is major.
– Capacity Utilization Rate is out at 9:15 AM. This is not major.
– Industrial Production is out at 9:15 AM EST. This is not major.
– NAHB Housing Market Index is out at 10 AM EST. This is major.
– Crude Oil Inventories is out at 10:30 AM EST. This is major.
– TIC Long-Term Purchases is out at 4 PM. This is not major.

Treasuries

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 10:30 AM EST with no economic news to speak of. The ZB hit a high at around that time and the YM hit a low. If you look at the charts below ZB gave a signal at around 10:30 AM EST and the YM was moving 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 10:30 AM EST and the YM hit a low. These charts represent the latest version of Trend Following Trades and I’ve changed the timeframe to a 30 minute chart to display better. This represented a shorting opportunity on the 30 year bond, as a trader you could have netted about 30 plus 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.
Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Click on an image to enlarge it.
ZB – December, 2016 – 11/15/16
YM- December, 2016 – 11/15/16

Bias

Yesterday our bias was neutral as the Bonds and Gold were both trading higher. The issue was the indices were also trading higher and because of this the markets weren’t correlated thus we gave it a neutral bias which means the markets could go in any direction. The Dow gained 54 points and the other indices gained ground 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 the economic news played a hand in the markets driving forward. Sure we could say the Trump rally but sooner or later it comes down to economic news that will drive any market. Retail Sales were up 0.8% versus 0.5% expected and the Empire State Manufacturing Index went to a positive +1.5% versus a negative -1.5% expected and that was a pleasant surprise. Today we have PPI, Core PPI and NAHB Housing market numbers which are major and proven market movers. Time will tell if positive news will drive the markets higher…
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-cor…ket-direction/

Many of my readers have been asking me to spell out the rules of Market Correlation. Recently 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:
http://www.futuresmag.com/2015/01/15…orning-trading

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 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 December Crude dropped to a low of $44.85 a barrel. It would appear at the present time that crude has support at $44.59 a barrel and resistance at $46.50. 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.
Last May 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 10:30 AM EST when the inventory numbers are released and the markets gives us better direction.

Future Challenges

So now that Mr. Trump has won the election and will become the 45th President of the United States, what will he do and how will that affect us? He promises to make America great again but thus far he’s very slight on details. He does however have some good ideas. I like the idea of slapping a 35% tariff on goods formerly manufactured in the United States, that will stop any company from leaving the US. The concern is what will he do with Obamacare? He’s promised to repeal it, but what will replace it? He’s never quite said what he’ll replace it with or is he going to throw 20 million Americans off the ACA and say you’re on your own? I’m certain there are members of the GOP who would advocate such but certainly Congress and the Senate won’t like it as they hear from their constituents on a daily basis. He claims that he wants to improve the lives of the “forgotten” man and woman but he’s never claimed that he would raise the minimum wage. So how is Mr. Trump going to do these miraculous things? He’ll borrow a play from the Apprentice and hire “smart” people and if they screw up he’ll fire them.

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.

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.

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