Tuesday, July 23, 2013

Pre-Market Global Review - Existing Home Sales Doesn't Deep Six Markets

Good Morning Traders,
As of this writing 5:00 AM EST, here’s what we see:
US Dollar –Down at 82.300, the Sept US Dollar is down 17 ticks and is trading at 82.300.             
Energies – September Oil is down at 106.25.        
Financials – The September 30 year bond is down 5 ticks and is trading at 135.11.      
Indices – The September S&P 500 emini ES contract is up at 1693.25  and is up 12 ticks.  
Gold – The August gold contract is trading down at 1331.30 and is down 51 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 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 lower 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. 
All of Asia closed higher with some exchanges higher by triple digits.  As of this writing Europe is trading higher.
Possible challenges to traders today is the following            
1.  Home Price Index is out at 9 AM EST.  This is major.        
2.  Richmond Manufacturing Index is out at 10 AM EST.  This is major.    
Yesterday we said our bias was to the upside as the USD was trading lower and Gold was much higher.  The net result?  The Dow gained 2 points and the other indices gained as well.  Today we aren't dealing with a correlated market however our bias is to the upside.  Why?  As of this writing the USD and Bonds are both trading lower which is bullish for the indices.  Asia closed higher to the tune of triple digits and currently Europe is trading higher.   Could this change? Of Course.  Remember anything can happen in a volatile market.
Yesterday our bias was to the upside and the only economic news item we had was Existing Home Sales.  The actual number came in lower (5.08 million versus 5.27 million expected) and yet despite this the market closed fractionally higher.  Hmm... must be something to this market correlation stuff...  The markets traded in and out of positive territory all day but managed to close higher.  One pundit is now saying that higher interest rates are causing a bump in the road for many buyers.  Well what does anyone think will happen if all anyone talks about everyday is will the Fed taper?  Ever since the last FOMC meeting the press has made an issue out of when will the Fed taper?  We've gone from next year, to September, to year end back to next year and all since June 20th when the Fed held their press conference.  In this market as volatile as it is perception becomes reality.  How many times have you heard of news stories about a specific stock or event and then after that event happens, the stock or market drops off?  This is nothing more than market manipulation at its finest.  Now ask yourself question, who benefits when this occurs?  Because it certainly isn't John Q. Public.  The Smart Money however will benefit from it and they have the horsepower to do so.  This is the reason why I urge folks not to trade when an impending news event is to be reported, it's also the reason why each day I'll quote news events or economic reports scheduled for that day.  Look, the markets have been doing this for over 100 years now if you want proof read a book called The Game in Wall Street.  That book was written in 1898 and guess what?  They're still doing the same things. 

 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 106.48 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 $106 a barrel and resistance at 109.  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.      
- Asian Contagion - happening now 

Crude oil is trading lower 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 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.

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