As of this writing 5:15 AM EST, here’s what we see:
US Dollar –Up at 83.230, the Sept US Dollar is up 34 ticks and is trading at 83.230.
Energies – August Oil is up at 106.48.
Financials – The September 30 year bond is up 13 ticks and is trading at 135.00.
Indices – The September S&P 500 emini ES contract is down at 1676.25 and is down 3 ticks.
Gold – The August gold contract is trading down at 1283.10 and is down 4 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 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 lower which is correlated with the US dollar trading up. 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 the exception of the Indian Sensex. As of this writing all of Europe is trading lower.
Possible challenges to traders today is the following
1. Core CPI is out at 8:30 AM EST. This is major.
2. CPI is out at 8:30 AM EST. This is major.
3. TIC Long Term Purchases are out at 9 AM EST. This is not major.
4. Capacity Utilization Rate is out at 9:15 AM EST This is not major.
5. Industrial Production Rate is out at 9:15 AM EST. This is not major.
6. NAHB Housing Market Index is out at 10 AM EST. This is major.
7. FOMC Member George Speaks at 2:15 PM EST. This is major.
Yesterday we said our bias was to the upside as Gold was higher and Asia and Europe were both higher. The net result? The Dow Closed 20 points higher. Today we are not dealing with a correlated market and as such our bias is to the downside today. Why? The USD and crude are not correlated, Europe is trading lower and Gold is also trading lower. Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday we said our bias was to the upside and despite a not too stellar retails sales report the Dow eked out a 20 point gain. This was not bad considering Retail Sales that came in at 0.4% versus 0.7% expected. Of course the Empire State Manufacturing Index came in higher at 9.5 versus 5.2 expected. FOMC Member Tarullo spoke about Dodd-Frank implementation and did not voice a policy comment or statement which I think helped as well. The question is will we be as fortunate today as FOMC Member George speaks at 2:15 PM EST? Only time will tell...
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
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 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 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. Yesterday August crude dropped to a low of 104.65 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 $103 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 higher 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 editions.