As of this writing 4:40 AM EST, here’s what we see:
US Dollar –Down at 81.730, the Sept US Dollar is down 328 ticks and is trading at 81.730.
Energies – September Oil is down at 104.74.
Financials – The September 30 year bond is up 17 ticks and is trading at 134.17.
Indices – The September S&P 500 emini ES contract is down at 1683.75 and is down 1 tick.
Gold – The August gold contract is trading up at 1330.60 and is up 17 ticks from its close.
Initial Conclusion: This is not a correlated market. The dollar is down- and oil is down- which is not 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 up and the US dollar is trading lower which is correlated. Gold is trading higher 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 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.
Asia closed mainly lower with the exception of the Hang Seng which closed higher. As of this writing Europe is trading higher.
Possible challenges to traders today is the following
1. Revised UOM Consumer Sentiment is out at 9:55 AM EST. This is not major.
2. Revised UOM Inflation Expectation is out at 9:55 AM EST. This is not major.
3. Lack of major economic reports.
Yesterday we said our bias was to the downside as the markets were correlated as such. Then President Obama spoke at 2 PM EST regarding the economy and the upcoming budget battle in DC after which the markets changed direction and went higher. The Dow closed 14 points higher as did the other indices. Today we are not dealing with a correlated market however our bias is to the upside. Why? The USD is trading lower, Gold is trading higher and Europe is trading higher as well. Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday our bias was to the downside. Core Durable Goods came in absolutely flat and Unemployment Claims jumped by 7K so the stage was set for a lower close. Then Obama decided to speak at around 2 PM, what did he say? Basically what he said was a follow thru from yesterday's "A Better Bargain" speech. He spoke about the 7.8 million new jobs created in the last 40 months and the fact that America could start to export energy overseas. What he forgot to mention BTW is the jobs created are menial at best, don't carry either a living wage or benefits and the Nat Gas exports comes with fracking that is guaranteed to turn America into "Gasland". Now I have to give the President credit where it's due. No one gives a better speech. This speech promises to be the opening salvo in the impending and upcoming Budget Battle looming in Congress. This shouldn't be any surprise to my subscribers as for months we've been predicting that this will happen and apparently it's starting. Obama talked about the GOP and DC and how politicians have it all wrong and why we need a forward thinking mentality for America. On all these points I agree, Mr. President. I just don't happen to think you're the guy to pull it off. This President likes to talk the talk and because he is an excellent speech giver, he'll have you convinced that he's right and that YOU should take action. Write your Congressman/woman and badger your Senator and have them deliver Me a bill that I can sign. With the exception of ObamaCare when has this President ever submitted a bill to Congress for passage? Democratic Senator Max Baucus has already called ObamaCare a "train wreck". This President talks the talk but when it comes down to it, he'll compromise and cave in to the demands of the GOP just to get something passed. Need proof? In 2011 he signed a bill that guaranteed a sequester in 2013 and what do we now have? A sequester. Some economists have suggested that ending the sequester will probably add one million new jobs and I agree, it probably would. Is he doing anything about it? Nope. He was adamant at the beginning of the year to have increased gun control. Did he do anything about it? Nope. Now you might be asking "well what could he do"? He could have issued an Executive Order and yes it will lead to nothing but at least the American people would know how strongly he supports the issue. So much for "A Better Bargain"...
On Friday, June 7th I had the opportunity to interview Mr. Sal Spedele regarding ObamaCare. Sal is a 20 year veteran of the Insurance Industry and we spoke at length regarding the ramifications of the Patient Protection and Affordable Care Act aka ObamaCare. If you are at all concerned about the future of Health Insurance in the United States, then you need to listen to this interview and act on it. Sal and his team is offering complimentary advisory services to inform you of your rights and ramifications of this Act. As an update on this issue, last week the White House extended the employer's mandate to 2015 versus 2014 and currently the house will vote on a similar measure for individuals. The question is can you trust the folks in DC to implement anything? To download the article on ObamaCare, go to: https://markettealeaves.sharefile.com/d/s978a806ae2e41569
To view my discussion with Sal: http://youtu.be/sR_ine0b5Ro
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 May, I spoke with John Karnas, CEO of Trend Following Trades. John has an interesting background as he was a trader for a number of years prior to buying Trend Following Trades. John is a believer in Trading Plans and has a very precise method of developing aspiring traders. To download the article I've written, go to:
My discussion with John can be viewed at: http://youtu.be/uVwHpMq1604
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 declining. 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. Yesterday September crude dropped to a low of 104.08 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 $104 a barrel and resistance at 108. 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.
- Asian Contagion - happening now
Crude oil is trading lower and the US Dollar is declining. 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 editions.
Nick Mastrandrea is the author of Market Tea Leaves. Market Tea Leaves is a free, daily newsletter that discuses and teaches 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, you’ll also receive our daily Market Bias video that is only available to subscribers.