Correlated Markets = Gains

London (Oct 26)  This is not a correlated market.  The dollar is down- and oil is up+  which is normal but 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 the US dollar is trading higher which is correlated.  Gold is trading lower which is not 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 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

Yesterday we said our bias was to the upside as the markets were completely correlated as such.  The Dow rose by 96 points and the other indices gained ground as well.  Today we aren't dealing with a correlated market and our bias is to the downside.  Why?  The Bonds are trading higher and Gold is trading lower.  Asia closed to the downside and currently Europe is trading to the downside.   Could this change? Of Course.  Remember anything can happen in a volatile market.

Yesterday we said our bias was to the upside as the markets were correlated as such.  Not only were they correlated but completely correlated to the upside.  And this happened with a not too stellar Unemployment Claims number.  I must admit we haven't seen this in awhile so the question is will this continue or will the markets look to take money off the table?  Time will tell but in the meantime we have Durable Goods numbers that are market movers....

Crude oil is trading higher and the US Dollar is declining.  This is normal.  Crude typically makes 3 major moves (long or short) during the course of any trading day: around 7 AM EST, 9 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.  If you feel compelled to trade consider doing so after 10 AM when the the markets give us better direction.  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.