JNJ Bars the Way

JNJ Bars the Way

Good Morning Traders,

As of this writing 6:05 AM EST, here’s what we see:

US Dollar: Dec '20 USD Down at 91.790.

Energies: Apr'21 Crude is Up at 61.19.

Financials: The June '21 30 year bond is Down 5 ticks and trading at 157.00.

Indices: The June'21 S&P 500 emini ES contract is 22 ticks Higher and trading at 4138.25. 

Gold: The June'21 Gold contract is trading Down at 1742.40.  Gold is 52 ticks Lower than its close.

 

Initial Conclusion

This is not a correlated market. The dollar is Down- and Crude is Up+ which is 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 not correlated with the US dollar trading Lower. 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 is trading mainly Higher with the exception of the Singapore and Nikkei exchange. Currently Europe is trading Higher with the exception of the Milan exchange which is down fractionally.

Possible Challenges To Traders Today:

  1. Import Prices are out at 8:30 AM EST. This is Major.
  2. Crude Oil Inventories is out at 10:30 AM EST. This is Major.
  3. Fed Chair Powell Speaks at 12 noon EST. This is Major.
  4. Beige Book is out at 2 PM EST. This is Major.
  5. FOMC Member Williams Speaks at 2:30 PM EST. This is Major.
  6. FOMC Member Clarida Speaks at 3:45 PM EST. This is Major.
  7. FOMC Member Bostic Speaks at 4 PM EST. No effect

Bias

Yesterday we gave the markets an Upside bias as the USD, Bonds and Gold were all trading Lower yesterday morning and under ordinary circumstances would have been an Upside day. The S&P and Nasdaq did trade Higher however the Dow dropped 68 points. Today we aren't dealing with a correlated market and our bias is to the Upside.

Could this change? Of Course. Remember anything can happen in a volatile market. 

Commentary

Yesterday we gave the markets an Upside bias as just about all the instruments we use for Market Correlation purposes indicated an Upside day. Then a funny thing happened around 7 AM EST. It was announced that the JNJ vaccine that only requires one dose was put on hold as some people developed blood clots in their brain allegedly due to this vaccine. However it should be understand that about 7 million JNJ vaccines were administered and out of those only six (6) persons were affected this way. That is minuscule and those persons were women ages 18-48. No women outside of that age range have been affected. This drove the Dow lower and as such the Dow was the only index to lose ground yesterday. Both the S&P and Nasdaq gained ground.  Today we have a bit more economic news so we shall see if this changes market direction today.

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 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 May crude dropped to a low of 59.64. 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 May. Both Russia and Saudi Arabia have agreed to keep production cuts in place for the next 6 - 9 months. This could artificially increase the price of crude at the pump by keeping supply low. However given the coronavirus situation prices are currently Lower because demand is Lower. Fewer people working, fewer people using their cars to get to work as many are working from home, etc. Please be advised that the new contract month for crude is now May '21.

If trading crude today consider doing so after 10:30 AM when the inventory numbers are released 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 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.