Sales Numbers Propel Markets

Good Morning Traders,

As of this writing 5:50 AM EST, here’s what we see:

US Dollar: Dec '21 USD is Up at 94.115.

Energies: Nov '21 Crude is Up at 82.53.

Financials: The Dec '21 30 Year bond is Down 12 ticks and trading at 159.00.

Indices: The Dec '21 S&P 500 emini ES contract is 62 ticks Lower and trading at 4447.00. 

Gold: The Dec'21 Gold contract is trading Down at 1762.30.  Gold is 60 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 and 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 S&P is Lower and Crude is trading Higher which is correlated. Gold is trading Lower 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.   Currently Asia is trading Mixed.  All of Europe is trading Lower.

Possible Challenges To Traders Today:

  • Industrial Production is out at 9:15 AM EST.  This is Major.
  • Capacity Utilization Rate is out at 9:15 AM EST.  This is Major.
  • NAHB Housing Market is out at 10 AM EST.  This is Major.
  • TIC Long-Term Purchases is out at 4 PM EST.  Not Major.

Treasuries

Traders please note that we've changed the Bond instrument from the 30 year (ZB) to the 10 year (ZN).  They work exactly the same.  

We've elected to switch gears a bit and show correlation between the 10 year bond (ZN) and The S&P futures contract.  The S&P contract is the Standard and Poor's 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 ZN made it's move at around 10:30 AM EST.  The ZN hit a High at around that time and the S&P moved Higher.  If you look at the charts below ZN gave a signal at around 10:30 AM EST and the S&P moved Higher at around the same time.  Look at the charts below and you'll see a pattern for both assets. ZN hit a High at around 10:30 AM EST and the S&P was moving Higher shortly thereafter.  These charts represent the newest version of MultiCharts and I've changed the timeframe to a 15 minute chart to display better.  This represented a Shorting opportunity on the 10 year note, as a trader you could have netted about 18 ticks per contract on this trade.   Each tick is worth $15.625.  Please note: the front month for the ZN is now Dec '21.  The S&P contract is now Dec '21 as well.  I've changed the format to Renko bars such that it may be more apparent and visible.  

Charts Courtesy of MultiCharts built on an AMP platform Click on an image to enlarge it.

ZN - Dec 2021 - 10/15/21
S&P - Dec 2021 - 10/15/21

Bias

On Friday we gave the markets an Upside bias as the USD, Bonds and Gold were all trading Lower Friday morning and this is usually indicative of an Upside day.   The markets didn't disappoint as the Dow closed 382 points Higher 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

On Friday the markets once again gravitated to the Upside as it was correlated as such and we received good economic news in the form of Retail Sales and Core Retail Sales.  Both numbers exceeded expectation.  Retail Sales came in at 0.7% versus the negative 0.2% that we saw last month.  Today we have NAHB Housing Market Index which is major and a proven market mover. 

On Thursday April 5 (2018) we had the honor and privilege to be interviewed by David Lincoln on his You Tube channel.  David is a floor trader for the options markets.  If you listen to this interview, you will enjoy it.  To view the interview go to:

https://youtu.be/U7gh9oanjIE

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-correlation-is-market-direction/

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 S&P is Lower. This is normal.  Crude and the markets are now reverse correlated such that when the markets are rising, crude drops and vice-versa.  On Friday Nov crude dropped to a low of 81.39.   Crude still hasn't returned to a sense of normalcy therefore we can't quote support and resistance numbers.  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 December.  OPEC had a meeting recently in which they agreed to keep production as it stands and not raise or lower the number of barrels pumped per day.  Crude has exceeded the $80 a barrel level and this isn't good for prices at the pump or for inflation.

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

 

Crude Oil Is Trading Higher

Crude oil is trading Higher and the S&P is Lower. 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.  To fully capitalize on this newsletter it is important that the reader understand how the various markets 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 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.