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Yellenspeak Moves Markets

Wednesday, February 15, 2017 3:15
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Yellenspeak Moves Markets

Good Morning Traders,
As of this writing 4 AM EST, here’s what we see:
US Dollar: Mar. USD is Up at 101.360.
Energies: March Crude is Down at 52.92.
Financials: The Mar 30 year bond is Down 4 ticks and trading at 150.16.
Indices: The March S&P 500 emini ES contract is 6 ticks Higher and trading at 2338.50.
Gold: The April gold contract is trading Up at 1227.20. Gold is 18 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 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 Down which is 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 mainly higher with the exception of the Sensex and Shanghai exchanges which traded lower. As of this writing all of Europe is trading higher.
Possible Challenges To Traders Today

– CPI m/m at 8:30 AM EST. This is major.
– Core CPI m/m is out at 8:30 AM EST. This is major.
– Core Retail Sales m/m is out at 8:30 AM EST. This is major.
– Retail Sales m/m is out at 8:30 AM EST. This is major.
– Empire State Mfg Index is out at 8:30 AM. 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.
– Fed Chair Yellen Speaks at 10 AM EST. This is major.
– Business Inventories m/m is out at 10 AM EST. This is 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.
– FOMC Member Harker Speaks at 12:45 PM EST. This is major.
– TIC Long-Term Purchases is out at 4 PM EST.
– FOMC Member Dudley Speaks at 7:15 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.
Yesterday the ZB made it’s move at around 10 AM EST with no economic news in sight. 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 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 10 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 – 2/14/17
YM- March, 2017 – 2/14/17

Yesterday we gave the markets a neutral bias as both the Bonds and the USD were trading lower and this usually results in the indices trading higher however that didn’t happen yesterday morning, hence the neutral bias. The Dow traded 92 points higher and the other indices traded higher 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.

Yesterday we had Janet Yellen providing her testimony to a Congressional Committee and truthfully she left rate hikes on the table insinuating that rate hikes may happen sooner as opposed to later and yet the markets went higher yesterday afternoon when she stopped speaking. Today she continues that testimony but we also have an unprecedented 14 economic reports in 1 day which is highly unusual and could be problematic for today trading. As always, time will tell if this is the case.

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 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 Lower and the futures are trading Higher. This is normal. Crude and the markets are now reverse correlated such that when the markets are rising, crude drops and vice-versa. Yesterday March Crude dropped to a low of $53.01 a barrel. It would appear at the present time that crude has support at $52.70 a barrel and resistance at $53.90. 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 10:30 AM EST when the inventory numbers are released and the markets gives us better direction.

Future Challenges

This past Thursday the 3 judges reviewing the ban Executive Order maintained that the Order was unconstitutional and upheld the stay of that E.O. The President responded with a tweet that claimed “see you in court”. The conjecture is however that the President will simply reissue the Executive Order only this time he’ll be more descriptive as to what it meaning is. Last time he pretty much issued a blanket order with no thought as to its consequences so Permanent Residents has the same rights as those who were entering the country for the first time. That is to say that they had no rights and the judges who reviewed and presided over this case has suggested that they do. Time will tell how the new Executive Order will be received once issued…

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 Lower

Crude oil is trading Lower and the markets are Higher. This is 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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