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Markets Adamant

Tuesday, February 21, 2017 3:52
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Markets Adamant

Good Morning Traders,
As of this writing 4:20 AM EST, here’s what we see:
US Dollar: Mar. USD is Up at 101.350.
Energies: March Crude is Up at 54.26.
Financials: The Mar 30 year bond is Down 9 ticks and trading at 150.31.
Indices: The March S&P 500 emini ES contract is 12 ticks Higher and trading at 2351.00.
Gold: The April gold contract is trading Down at 1231.50. Gold is 76 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 but 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 Down and Crude is trading Up which is correlated. Gold is trading Down 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 traded mixed with half the exchanges trading higher and the other half lower. As of this writing all of Europe is trading lower with the exception of the German Dax which is trading higher.
Possible Challenges To Traders Today

– FOMC Member Kashkari Speaks at 8:50 AM EST. This is major.
– Flash Manufacturing PMI is out at 9:45 AM EST. This is major.
– Flash Services PMI is out at 9:45 AM EST. This is major.
– FOMC Member Harker Speaks at 12 PM EST. This is major.

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.
On Friday the ZB made it’s move at around 9:30 AM EST right at the Opening Bell. 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 9:30 AM 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 9:30 AM EST and the YM hit a low. These charts represent the newest 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 – March, 2017 – 2/17/17
YM- March, 2017 – 2/17/17

On Friday we gave the markets a downside bias as both the USD and the Bonds were trading higher and this usually results in the indices trading lower. The Dow was trading lower pretty much all session long until the last 10 minutes or so. The Dow traded up by 4 points and the other indices lost 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.

It seems that this market is adamant about thing: trading to a higher high and not closing into negative territory. Friday was the second day in a row where the Dow traded lower all session long (as predicted) but in the last 10 minutes or so jumped up into positive territory. Why is this? Wall Street is adamant about teh market closing into higher highs. Why? They’re all waiting to see what Trump’s proposed tax plan will be and looks like. In this regard they are buying into his hype. On Friday he flew into Florida on Air Force One and addresses a crowd as though he’s still in campaign mode. Apparently this seems to rejuvenate his ego as he gets pumped up by it and our new First Lady decides to open with the Lords Prayer? Don’t get me wrong I have nothing against the Lords Prayer but there is a separation between Church and State in this country, apparently he didn’t get that memo. He pumps up the crowd by introducing someone that no one had ever heard of before (thereby giving this person his 15 minutes of fame) and of course the crowd loves it. He knows how to manipulate a crowd but fails miserably when he attempts to do that with the press. Of course called them “fake news” isn’t helping his cause…

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:…ket-direction/

Many of my readers have been asking me to spell out the rules of Market Correlation. 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:…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. On Friday March Crude dropped to a low of $52.88 a barrel. It would appear at the present time that crude has support at $52.80 a barrel and resistance at $54.20. 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. Please note that the front month for crude is now March. Last December and after two years OPEC finally decided to cut production but the price crude is still tame (as of this writing). 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. The move by OPEC to cut production in an attempt to pump up prices is liken to “too little, too late” as the world doesn’t need their oil as much as they used to. Power equipment that used to need oil (Grass Trimmers, Lawn Mowers, Autos) now run on battery power and Canada and the United States are producing more of their own crude. As an update to this the non-OPEC countries have come to an agreement to unilaterally cut production across the board and this has served to temporarily raise crude prices. We’ll have to see if and how long this lasts…

If trading crude today consider doing so after 10 AM EST when the markets gives us better direction.

Future Challenges

The new US President has much to learn about politics and getting things done. He came into office with the notion of “draining the swamp” but what he hasn’t figured out yet is how the swamp works. In other words if you want to “fix” something you must first understand how it works. He doesn’t want to understand or learn how it works, he just wants to replace it but has yet to say how or what that replacement will be or what it looks like. Within less than 30 days, this President has managed to perturb:China, Russia, Iran, Israel, Iran and Australia. His NSA Advisor was found to be buddy-buddy with Russia and had to resign and Trump is blaming the media! His Counselor Kelly Ann Conway can’t even tell the truth in an interview and constantly pivots, deflects and avoids answering any question. Trump himself refuses to answer any question he doesn’t feel like answering. What I find to be concerning about this is a refusal to accept and/or face reality when it’s staring right at you but rather explain it away with “alternate facts”…

TradersLog has just published an article entitled “So You Think You Can Trust Your Elected Officials?” That article can be viewed at:

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. 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. Sceeto does an excellent job at this. To fully capitalize on this newsletter it is important that the reader understand how the various market 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 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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