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Markets Move – fractionally….

Monday, February 27, 2017 3:53
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Markets Move – fractionally…

Good Morning Traders,
As of this writing 4:40 AM EST, here’s what we see:
US Dollar: Mar. USD is Up at 101.100.
Energies: April Crude is Up at 54.44.
Financials: The Mar 30 year bond is Down 6 ticks and trading at 153.01.
Indices: The March S&P 500 emini ES contract is 9 ticks Higher and trading at 2367.25.
Gold: The April gold contract is trading Down at 1255.20. Gold is 31 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 Up and Crude is trading Up which is not 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.
All of Asia traded lower. As of this writing all of Europe is trading higher at this hour.
Possible Challenges To Traders Today

– Core Durable Goods Orders is out at 8:30 AM EST. This is major.
– Durable Goods Orders m/m is out at 8:30 AM EST. This is major.
– Pending Home Sales m/m is out at 10 AM EST. This is major.
– FOMC Member Kaplan Speaks at 11 AM 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 10:30 AM EST with no news to speak of. The ZB hit a higher high at around that time and the YM hit a high. If you look at the charts below ZB gave a signal at around 10:30 AM 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 higher high at around 10:30 AM EST and the YM hit a high. 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 long opportunity on the 30 year bond, as a trader you could have netted about 20 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 – 2/24/17
YM- March, 2017 – 2/24/17

On Friday we gave the markets a downside bias as the Bonds and Gold were both trading higher and this usually results in a downside day. The Dow gained 11 points and the other indices gained albeit fractionally. Today we aren’t dealing with a correlated market however our bias is to the upside.
Could this change? Of Course. Remember anything can happen in a volatile market.

On Friday we gave the markets a downside bias as both the Bonds and Gold were trading higher Friday morning and ordinarily this results in a downside day. Ironically the markets opened lower and stayed lower even after President Trump made an announcement regarding tax reductions for the middle class. On would think that this was enough to drive the markets higher but at that point, it didn’t happen. However at about 10 minutes prior to the market close the markets rose and the Dow closed higher by 11 points, the S&P by about 4 and the Nasdaq by about 10. Last week we mentioned in one of our editions that the Smart Money (institutionals) are adamant about the market rising and Friday’s session was certainly proof of that. From our point of view we’ll stick with our rules of market correlation as most of Friday’s session was down….

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 April Crude dropped to a low of $53.76 a barrel. It would appear at the present time that crude has support at $53.70 a barrel and resistance at $54.87. 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 April. 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

On Friday it was announced that the White House decided to disallow certain media outlets from attending any press sessions in the future. This was announced by the White House Press Secretary Sean Spicer. CNN, the New York Times, LA Times and others were blocked from any press briefings. Although this was announced by Spicer, it’s pretty clear who is behind this. In a word this is censorship; it’s liken to saying “I don’t like what you say therefore you’re blocked”. This President is running the country as though it’s a Fortune 1000 company and quite frankly it is not. Anyone who works today knows that once you agree to do a job, your constitutional rights go right out the window. Corporations are not democracies. In a democracy you should be allowed to say what you think without concern, hence freedom of speech. You should be allowed to write what you think as well hence freedom of the press. This does not exist in business and apparently this administration doesn’t understand this either. Now there may be some folks out there who think that government should be run as a business. There might be some measure of truth to this when it comes to an agency (Postal Service, etc.) but when it comes to transparency that idea should be thrown out the proverbial window…

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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