As of this writing 5:30 AM EST, here’s what we see:
US Dollar –Up at 83.295, the US Dollar is up 228 ticks and is trading at 83.295.
Energies – July Oil is down at 92.80.
Financials – The June 30 year bond is up 24 ticks and is trading at 142.08.
Indices – The June S&P 500 emini ES contract is down at 1642.00 and is down 46 ticks.
Gold – The June gold contract is trading up at 1412.3 and is up 8 ticks from its close.
Initial Conclusion: This is a correlated market, unfortunately it is correlated to the downside. The dollar is up+ and oil is down- which is 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 the US dollar is trading higher which is correlated. Gold is trading higher which is not correlated with the US dollar trading higher. 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.
All of Asia closed lower except the Nikkei which gained 186 points. As of this writing all of Europe is trading lower.
Possible challenges to traders today is the following
1. Core PCE Price Index is out at 8:30 AM EST. This is not major.
2. Personal Spending is out at 8:30 AM EST. This is major.
3. Personal Income is out at 8:30 AM EST. This is major.
4. Chicago PMI is out at 9:45 AM EST. This is major.
5. Revised UOM Consumer Sentiment is out at 9:55 AM EST. This is not major.
6. Revised UOM Inflation Expectations is out at 9:55 AM EST. This is not major.
Yesterday we said our bias was to the downside as the markets weren't correlated and the Nikkei exchange fell by 737 points. The Smart Money however had other plans. After losing 106 points on Wednesday, the markets rebounded and closed higher. The Dow gained 22 points and the indices closed higher. Today we are dealing with a correlated market however it is correlated to the downside hence our bias is to the downside. Bear in mind that we have 4 major economic reports which could drive the markets in any direction today. Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday we had 6 economic reports, 4 of which were major. I cannot help but be suspicious when those economic reports come in below expectations, yet the markets advance. If you read the headlines today you'd think we no longer have a housing problem, yet the same people who wrote that omitted one vital fact: the reported number came in below expectation. In fact all of the numbers today came in below expectation:
- GDP - 2.4% versus 2.5% expected
- Unemployment Claims - 354,000 vs 342,000 expected
- Pending Home Sales - 0.3 percent versus 1.3 percent expected
Yet the markets rose. Ask yourself a question: if this isn't market manipulation then what is it? Under any normal circumstance this market would have dropped like a rock yesterday. Yet it advanced. Understand that when the Smart Money aka institutionals decide that the market is going up, it's going up. When they trade, they don't trade ten contracts, they trade thousands at a clip regardless of whether or not it's justified. Don't think for one second that they don't manipultae headlines either. One headline read "It's Official, Housing Crisis Over." Oh really. I have a house right next door to me that's been vacant for 5 years and Bank of America can't figure out what to do with it. Don't think the Smart Money can manipulate headlines? The very article associated with this newsletter on Binary Options has been presented to every major publication and has all been rejected. Why? Could it be that their advertisers don't want people to know there's a better mouse trap? My, my what a coincidence....
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 downside. Could this change? Of course. In a volatile market anything can happen. We'll have to monitor and see.
In April I had the opportunity to interview Mr. Dan Cook, Director of Business Development for Nadex.com Nadex is an exchange that is devoted solely to binary options. Recently there's been quite a bit of misinformation regarding Binary Options and how they work. Some have even speculated that opening a Binary Option trading account is the same as identity theft. My objective is to dispel these myths and to alert the retail trader as to what a binary option is, how to trade them, how to amend an order and how to exit a trade for profit. Nadex is a Chicago based exchange that abides by the rules of CFTC. I've created an eBook that will discuss and show how a trader can capitalize on this innovative instrument. This is an 8 page eBook loaded with charts, diagrams etc. Each chart/diagram shown has been approved by Nadex and has gone thru their compliance department. When last I heard compliance departments for exchanges are tough when it comes to misrepresentation. Feel free to download and to share with those you know. It's time we saw some innovation.... To View and Download this article, go to:
https://markettealeaves.sharefile.com/d/s59fb4ac49ca47508
My interview with Dan can be viewed at:
http://youtu.be/ENRRbwH6A_o
Please note the video is about a half hour in length and we plan on producing more in the near future. Also note that in the near future we will have other videos where we will interview various trading leaders.
As I write this the crude markets are trading lower and the US Dollar is advancing. This is normal. Think of it this way. If the stock market is trading lower, it's safe to assume that the crude market will follow suit and vice versa. Crude trades with the expectation that business activity is expanding. The barometer of which is the equities or stock market. If you view both the crude and index futures side by side you will notice this. Yesterday July crude dropped to a low of 91.76 a barrel and held. We'll have to monitor and see if crude either goes lower or holds at the present level. It would appear at the present time that crude has support at 91.00 a barrel and resistance at 96. This could change. All we need do is look at what happened last fall when crude was trading over $100.00 a barrel. We'll have to monitor and see. Remember that crude is the only commodity that is reflected immediately at the gas pump.
Future Challenges:
- Budget Battle - ongoing.
- Debt Ceiling in the August time frame.
- European Contraction - happening now
Crude oil is trading lower and the US Dollar is advancing. 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 economic numbers are released and 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.
Recently Published Articles:
http://www.investing.com/analysis/rockwell-trading-ceo-heitkoetter:-a-simple,-timeless-trading-strategy-166093
http://www.barchart.com/headlines/story/10110400/leadership-or-lack-thereof
http://www.barchart.com/headlines/story/9971005/german-factory-orders-up-us-down
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 blogs.
