Good Morning Traders,
As of this writing 4:40 AM EST, here’s what we see:
US Dollar –Up at 81.430, the Sept US Dollar is up 260 ticks and is trading at 81.430.
Energies – September Oil is down at 105.85.
Financials – The September 30 year bond is down 2 ticks and is trading at 134.12.
Indices – The September S&P 500 emini ES contract is down at 1678.50 and is down 31 ticks.
Gold – The October gold contract is trading up at 1327.80 and is up 151 ticks from its close.
Initial Conclusion: This is not a correlated market. The dollar is up+ and oil is down- which is normal but 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 down and the US dollar is trading lower which is not correlated. Gold is trading higher which is not 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.
Asia closed mainly higher with the exception being the Nikkei exchange which closed lower. Japan missed its GDP estimate in the overnight session. As of this writing all of Europe is trading lower.
Possible challenges to traders today is the following
1. No major economic news.
2. Lack of major economic news.
3. Federal Balance Budget is out at 2 PM EST. This is not major.
Currencies
As a follow up to what happened on Friday with the Canadian Dollar, it did not make a move at 10 AM EST. It made its move at around 9:30 AM EST. So what happened? Canada reported Unemployment numbers was released at 8:30 AM EST and it came in less than expected. So initially the currency dropped and then at 9:30 AM EST it hit bottom and then proceeded higher. On the chart below I show two blue arrows, the first that shows the CDN hitting a bottom and the second that shows potential entry for a long trade. Please note this is a new and enhanced version of the TFT charts. In the near future I will be discussing this with John Karnas, CEO of TFT.
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| Chart Courtesy of Trend Following Trades |
On Friday we said our bias was to the downside as the markets weren't correlated and Gold was trading lower. The net result being that after a 1 day reprieve to the upside the Dow dropped 72 points and the other indices lost ground as well. Additionally we felt that although Asia had closed mainly higher, Europe was trading lower (at least at the time we look at it). But as readers of this newsletter, you knew that at 6 AM. Today we are not dealing with a correlated market and therefore our bias is to the downside. Could this change? Of Course. Remember anything can happen in a volatile market.
Well it would appear that after a one day reprieve, we see the return of malaise. That's the aspect of market correlation. We strive to keep you on the right side of the market. The question now is will we see a return of malaise or is this a one day event? Time will tell and of course we will monitor to see how events progress.
Awhile ago we ran a story on Binary Options and the benefits thereof. TraderPlanet has decided to publish that story in two parts, Part One was released late Thursday and Part Two will be released sometime this week. Now you may or may not be familiar with TraderPlanet, but if you've been trading for any length of time, you are familiar with SFO (Stock, Futures & Options) magazine. TraderPlanet bought SFO about a year ago. The article can be viewed at:
http://www.traderplanet.com/articles/view/164634-dispelling-the-myths-on-binary-options/
I've also included the interview I did with Dan Cook, Director of Business Development for Nadex, it can be viewed at: http://youtu.be/ENRRbwH6A_o
Many of my readers have been asking me to spell out the rules of Market Correlation. Recently Futures Magazine has elected to print a story on the subject matter and I must say I'm proud of the fact that they did as I'm Author of that article. I encourage all viewers to read that piece as it spells out the rules of market correlation and provides charts that show how it works in action. The article is entitled "How to Exploit and Profit from Market Correlation" and can be viewed at:
http://www.futuresmag.com/2013/08/01/how-to-exploit-and-profit-from-market-correlation
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 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:
https://markettealeaves.sharefile.com/d/s0e8e37fe5944fc79
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 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. On Friday September crude dropped to a low of 103.63 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 107. 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 late August/September time frame.
- Asian Contagion - 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 the 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.
Recently Published Articles:
http://www.barchart.com/headlines/story/10598425/when-perception-becomes-reality
http://www.forexcrunch.com/the-sitzkrieg-jobs-report/
http://www.forexcrunch.com/leadership-or-lack-thereof-part-ii/
http://www.traderslog.com/john-karnas/
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?
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