As of this writing 4:15 AM EST, here’s what we see:
US Dollar –Up at 83.995, the US Dollar is up 237 ticks and is trading at 83.995.
Energies – July Oil is up at 94.46.
Financials – The June 30 year bond is down 23 ticks and is trading at 142.21.
Indices – The June S&P 500 emini ES contract is up at 1663.25 and is up 51 ticks.
Gold – The June gold contract is trading down at 1385.00 and is down 16 ticks from its close.
Initial Conclusion: This is not a correlated market. The dollar is up+ and oil is up+ 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 indices are up and the US dollar is trading higher which is not correlated. Gold is trading lower which is 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 closing higher. As of this writing all Europe trading higher.
Possible challenges to traders today is the following
1. S&P/CS Composite-20 HPI y/y is out at 9 AM EST. This is major.
2. CB Consumer Confidence is out at 10 AM EST. This is major.
3. Richmond Manufacturing Index is out at 10 AM EST. This is major.
Last Friday we said our bias was to the downside as the markets were correlated as such. Additionally Europe was trading lower and subsequently closed down. However it would appear as though the Smart Money wanted to end the session on an upbeat and after having traded down most of the day, in the last 10 minutes of trading the Dow closed up 9 points, the Nasdaq closed flat and the S&P closed down 1. Amazing what the Smart Money can do when they put their minds to it. Today we are not dealing with a correlated market. However our bias is to the upside today. Why? All of Asia closed higher and currently Europe is trading higher to the tune of triple digits. Additionally The Bonds are trading lower which is bullish for the markets and indices. Lastly, traditionally after a 3 day weekend the markets generally lean to the upside as there is pent up demand after a holiday. Could this change? Of Course. Remember anything can happen in a volatile market.
It was pretty much a down session on Friday as we suspected it would be. The markets remained down up till the last 10 minutes or so of trading. So I guess no one wanted to go on a long 3 day weekend without an upbeat. This week starts the unofficial summer trading season and whereas in the past the rule of thumb has been "sell in May and go away"; the last couple of years have dispelled this. As always, we'll have to monitor and see.
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.
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:
My interview with Dan can be viewed at:
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 higher and the US Dollar is advancing. This is not 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. On Friday July crude dropped to a low of 93.04 a barrel and held. Currently is trading at around the 94.50 a barrel mark and was actually lower this morning. 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 92.00 a barrel and resistance at 98. 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.
- 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 not 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 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.
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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.