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The Fed Speaks


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The Fed Speaks

Good Morning Traders,

As of this writing 5:25 AM EST, heres what we see:

US Dollar: March USD is Up at 98.605.

Energies: March'20 Crude Up at 50.67.

Financials: The Mar'20 30 year bond is Down 24 ticks and trading at 161.23.

Indices: The March S&P 500 emini ES contract is 45 ticks Higher and trading at 3368.75.

Gold: The April '20 Gold contract is trading Down at 1568.00. Gold is 21 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 Higher and Crude is trading Higher which is not 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.

At this time all of Asia is trading Higher. Currently all of Europe is trading Higher as well.

Possible Challenges To Traders Today:

  • FOMC Member Harker Speaks at 8:30 AM EST. This is Major.
  • Fed Chair Powell Testifies at 10 AM EST. This is Major.
  • Crude Oil Inventories is out at 10:30 AM EST. This is Major.
  • 10-y Bond Auction starts at 1 PM EST. This is Major.
  • Federal Budget Balance is out at 2 PM. This is Major.

Bias

Yesterday we gave the markets an Upside bias as the Bonds, Gold and the USD were all pointed Lower yesterday morning and this is usually indicative of an Upside day. Ironically the markets traded Higher most of the session yesterday and only fell in the final minutes of trading. The Dow dropped by less than 1 point however the S&P and Nasdaq both gained ground. 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.

Commentary

So the Fed Chief Powell testified before Congress today and it seems as though he hasn't done this in awhile. Last time around he spoke about the trade war with China. Yesterday he spoke about the coronavirus from China and how that might impact our economy. What he said didn't make the markets fall off the side of a cliff but the Dow flipped flopped between positive and negative territory all session long and in the last minutes of trade lost less than one point. The S&P and Nasdaq both gained ground. Today The Fed Chief returns to deliver Day Two of his testimony....

On Thursday, April 5th (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:

ttps://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 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 Higher and the S&P is 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 March crude dropped to a low of $49.71. It would appear at the present time that crude has support at $49.50 a barrel and resistance at $53.00. 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. Both Russia and Saudi Arabia have agreed to keep production cuts in place for the next 6 - 9 months. This will artificially increase the price of crude at the pump by keeping supply low.

trading crude today consider doing so after 10:30 AM EST when the inventory numbers come out and the markets give us better direction.

Crude Oil Is Trading Higher

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

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, youll also receive our daily Market Bias video that is only available to subscribers.



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About the author


Nick Mastrandrea is the author of Market Tea Leaves. Market Tea Leaves is a free, daily newsletter that discuses and teaches market correlation. Market Tea Leaves is published daily, pre-market in the United States and can be viewed at www.markettealeaves.com Feel free to visit and subscribe.

Nick has traded various financial instruments in his career but is currently  focused on the Futures markets. At one time Nick held a NASD Series 7 license and currently holds a Life, Health and Variable Authority.  He resides in the Princeton area of New Jersey and can be reached at nmastran@verizon.net or Skype: nmastran

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