Pre-market global review: Crude oil is trading lower [Video]

Yesterday we gave the markets an Upside bias as both the USD and the Bonds were trading Lower Wednesday morning and this is usually indicative of an Upside day.  The markets didn't disappoint as the Dow closed Higher by 74 points and the other indices gained ground as well.  Today we aren't dealing with a correlated market and our bias is Neutral.

Yesterday we witnessed a reprise of Tuesday's session as the Senate Majority Leader Mitch McConnell once again made the most ridiculous claims on why the Senate couldn't vote on a $2,000 direct payment to taxpayers.  He stated that there was no clear path to getting a vote on a $2,000 dollar direct payment.  Yet this did not deter the markets as they performed as expected.  Yesterday we suggested an Upside day and the markets didn't disappoint.  Maybe there is something to this Market Correlation thing that we've been talking about.  On a lighter note this is the last edition for 2020 and I just wanted to wish everyone who reads this a Happy and Safe New Year.  We all know it's been a trying and tough year but we trust and hope that 2021 will be a far better one.  We will be back on Monday, January 4th.  Happy New Year!!!!

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.

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 Lower and the S&P is Lower. 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 February crude dropped to a low of 48.28  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 February.  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 February '21.

If trading crude today consider doing so after 10 AM when the markets give us better direction.

Crude oil is trading Lower and the S&P is Lower. 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.