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No News is Good News

Tuesday, November 22, 2016 3:30
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(Before It's News)

No News is Good News

Good Morning Traders,
As of this writing 4:15 AM EST, here’s what we see:
US Dollar: Dec. USD is Down at 100.805.
Energies: January Crude is Up at 48.49.
Financials: The Dec 30 year bond is Up 25 ticks and trading at 153.31.
Indices: The December S&P 500 emini ES contract is 28 ticks Higher and trading at 2200.00.
Gold: The December gold contract is trading Up at 1217.70. Gold is 79 ticks Higher than its close.
Initial Conclusion

This is not a correlated market. The dollar is Down and crude is Up which is normal but the 30 year bond is trading Up. 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 Up 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.
All of Asia traded higher. As of this writing Europe is also trading higher as well.

Possible Challenges To Traders Today

– Existing Home Sales is out at 10 AM EST. This is major.
– Richmond Manufacturing Index is out at 10 AM. This is 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 AM EST with no economic news in sight. The ZB hit a low at around that time and the YM hit a high. If you look at the charts below ZB gave a signal at around 10 AM EST and the YM was moving lower at the same time. Look at the charts below and you’ll see a pattern for both assets. ZB hit a low at around 10 AM EST and the YM hit a high. 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 long opportunity on the 30 year bond, as a trader you could have netted about 15 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 – 11/21/16
YM- December, 2016 – 11/21/16

Bias

Yesterday our bias was neutral as both the Bonds and Gold were trading higher and ordinarily this would suggest a downward bias except the indices were trading higher as well. The Dow gained 89 points and the other indices gained ground as well. Today we aren’t dealing with a correlated market and our bias is to the upside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary

Yesterday we had no economic news in the United States to drive the markets in one direction or another hence our bias was neutral which means it could go in any direction. The Dow remained in positive territory the entire session as did the S&P and Nasdaq. The Dow is withing striking distance of 19,000 which is an all time high. This means the Trump rally is still in play but today we do have economic news in Existing Home Sales and the Richmond Manufacturing Index so 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-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 upside. 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. Yesterday January Crude dropped to a low of $47.69 a barrel. It would appear at the present time that crude has support at $47.10 a barrel and resistance at $49.50. 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 AM EST when the markets gives us better direction.

Future Challenges

So now that Mr. Trump has the job and will become the 45th President of the United States, what will he do and how will that affect us? We believe he’s starting to realize how intense this job is. If you saw after he met with Obama it was a look of realization, as if to say “what have I done or what do I do now”? Some of his choices for his Cabinet aren’t resting too well with many folks. Rudy Guiliani? That’s an individual who definitely forgot where he came from and appointing his son-in-law in a cabinet post? Very bad idea as we have laws that forbid such. Limiting the number of terms anyone in government can serve? Another bad idea that Mitch McConnell will want to shoot down. Bottom line, he starting to back off many of his campaign promises. A Special Prosecutor for Hillary? I would venture to say that a deal was already cut whereby Hillary concedes quickly (as she did) and Trump backs off the investigation. This past Friday he already cut a deal to stop the Trump University lawsuit by shelling out 25 million dollars to end it. Just about the one smart move the Donald made thus far is to attempt to reconcile with Mitt Romney and make him Secretary of State. Mr. Romney certainly has the political tact and diplomacy needed for such a job wheres as Giuliani would be a disaster.

Crude Oil Is Trading Higher

Crude oil is trading Higher and the markets are Higher. 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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