Jobs Friday

Good Morning Traders,
As of this writing 3:40 AM EST, here’s what we see:
US Dollar: Jun. USD is Up at 100.625.
Energies: May Crude is Up at 52.48.
Financials: The June 30 year bond is Up 5 ticks and trading at 151.28.
Indices: The June S&P 500 emini ES contract is 21 ticks Lower and trading at 2348.50.
Gold: The April gold contract is trading Up at 1265.70. Gold is 124 ticks Higher 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 Higher. 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 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.
At this hour Asia is trading mixed with Higher and the other half Lower. As of this writing all of Europe is trading Lower.
Possible Challenges To Traders Today

– Average Hourly Earnings is out at 8:30 AM EST. This is major.
– Non-Farm Employment Change is out at 8:30 AM. This is major.
– Unemployment Rate is out at 8:30 AM EST. This is major.
– Final Wholesale Inventories is out at 10 AM EST. This is not major.
– FOMC Member Dudley Speaks at 12:15 PM EST. This is major.
– Consumer Credit m/m is out at 3 PM EST. This is major.

Treasuries
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 after the 8:30 AM economic news was reported. 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 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 – June, 2017 – 4/6/17
YM- June, 2017 – 4/6/17
Bias

Yesterday we gave the markets a downside bias as Gold and the Bonds were pointed higher and this usually results in a downside day. The markets however had other ideas as the Dow gained 15 points and the other indices gained as well albeit fractionally. Given that today is Non Farm Payrolls we will maintain a neutral bias.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary

Yesterday the markets initially moved lower based upon what happened on Wednesday when the Dow blew 200 point gain to close lower. Initially the markets traded lower but after 10 AM EST gained traction and started to trade in positive territory. Given that today is Jobs Friday we will maintain a neutral bias. Why? Because the markets have never shown any sense of normalcy on Jobs Friday and in essence could go in any direction.
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-cor…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: http://www.futuresmag.com/2015/01/15…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 Higher and the futures are trading Lower. This is normal. Crude and the markets are now reverse correlated such that when the markets are rising, crude drops and vice-versa. Yesterday May Crude dropped to a low of $51.48 a barrel. It would appear at the present time that crude has support at $50.27 a barrel and resistance at $53.00. 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 May. 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

Credibility Issues – President Trump has some major issues when it comes to credibility. He keeps claiming that no one near to him has had any dialogue with the Russians yet the evidence says otherwise. On top of that he muddies the waters by tweeting false statements and innuendos regarding former Presidents or members of his own party. He has virtually declared war on the Freedom Caucus for not supporting the Healthcare Bill and still thinks he can run DC like it’s one of his companies. It still hasn’t dawned on him yet that these are elected officials that he can’t fire like a contestant on the Apprentice. If the American people can’t trust what he says now how can they trust him when a real crisis emerges?

It was announced last night that President Trump ordered an air strike on Syria due to President Assad’s use of chemical weapons on his own people. The US used Tomahawk cruise missiles, not manned aircraft. Thus far the stock market reaction has not been positive but this could change…

TradersLog has just published an article entitled “So You Think You Can Trust Your Elected Officials?” That article can be viewed at: http://www.traderslog.com/trust-elected-officials

Crude Oil Is Trading Higher

Crude oil is trading Higher and the markets are 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. 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 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.