Futures Commentary and Analysis


Nick Mastrandrea - IF - Fri Jan 12, 3:16AM CST


Good Morning Traders,

As of this writing 4 AM EST, heres what we see:

US Dollar: Mar. USD is Down at 91.350.

Energies: Feb 18 Crude is Down at 63.39.

Financials: The Mar 30 year bond is Down 10 ticks and trading at 150.04.

Indices: The Mar S&P 500 emini ES contract is 20 ticks Higher and trading at 2774.50.

Gold: The Feb gold contract is trading Down at 1329.10. Gold is 66 ticks Higher than its close.

Initial Conclusion

This is not a correlated market. The dollar is Down- and Crude is Down- 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 Down- which is correlated. Gold is trading Up+ which is correlated with the US dollar trading Down-. 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 dont 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 Higher with the exception of the Nikkei exchange which is Lower. As of this writing all of Europe is trading Higher.

Possible Challenges To Traders Today

  • CPI m/mis out at 8:30 AM. This is major.
  • Core CPI m/mis out at 8:30 AM EST. This is major.
  • Core Retail Sales m/mis out at 8:30 AM EST. This is major.
  • Retail Sales m/m is out at 8:30 AM EST. This is major.
  • Business Inventories is out at 10 AM EST. This is major.
  • IBD/TIPP Economic Optimism. This is major.


Weve 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 its liken to a seesaw, when up goes up the other should go down and vice versa.

Yesterday the ZB made its move at around 1:30 PM EST. 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 1:30 PM EST and the YM was moving Higher at the same time. Look at the charts below and youll see a pattern for both assets. ZB hit a High at around 1:30 PM and the YM hit a Low. These charts represent the newest version of MultiCharts and Ive 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 15 ticks per contract on this trade. Each tick is worth $31.25.

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

ZB Mar, 2018 1/11/18

YM- Mar, 2018 1/11/18


Yesterday we gave the markets a Neutral as the futures didnt seem to have any sense of direction hence the neutral bias. The Dow 206 points and the other indices gained ground as well. Today we arent 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.


Yesterday we gave the markets a neutral bias because we didnt see any correlation amongst the various instruments we track. The markets started lower, went higher into positive territory and kept climbing. Why? We suspect that the Smart Money is at work here. This is not unusual as often when the markets and it makes no sense for that to occur, the institutionals get involved and ratchet the markets higher. This happened quite often in 2009 when the markets were at an all time low and the term PPT came into play. PPT refers to Plunge Protection Team. It seemed that around that time the Smart Money wanted to make at least 3 points on any one particular index future and would buy or sell thousands at a clip. In one respect it helped to bolster the markets at that particular time.

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 dont trade equities. While were on this discussion, lets define what is meant by a good earnings report. A company must exceed their prior quarters earnings per share and must provide excellent forward guidance. Any falloff between earning per share or forward guidance will not bode well for the companys shares. This is one of the reasons I dont trade equities but prefer futures. There is no earnings reports with futures and we dont have to be concerned about lawsuits, scandals, malfeasance, etc. Anytime the market isnt correlated its giving you a clue that something isnt 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. Well 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 February Crude dropped to a low of $63.79 a barrel. It would appear at the present time that crude has support at $63.00 a barrel and resistance at $65.00. This could change. Well 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 February. Last month OPEC met once again to cut production but the price of crude is starting to climb. Whereas prior to the production cuts the ceiling was in the 50 dollar range, it is now in the 60 plus dollar range. The question is if whether this is temporary or something more permanent. 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. Well 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.

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 todays market is crucial. We as traders are faced with numerous challenges that we didnt have a few short years ago. High Frequency Trading is one of them. Im 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 its 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, youll also receive our daily Market Bias video that is only available to subscribers.

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