As of this writing 5:00 AM EST, here’s what we see:
US Dollar –Up at 81.580, the Sept US Dollar is up 206 ticks and is trading at 81.580.
Energies – September Oil is up at 106.84.
Financials – The September 30 year bond is down 24 ticks and is trading at 133.12.
Indices – The September S&P 500 emini ES contract is up at 1693.25 and is up 25 ticks.
Gold – The October gold contract is trading up at 1336.10 and is up 18 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 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.
All of Asia higher with some exchanges higher by triple digits. As of this writing all of Europe is trading higher.
Possible challenges to traders today is the following
1. NFIB Small Business Index is out at 7:30 AM EST. This is not major.
2. Retail Sales is out at 8:30 AM EST. This is major.
3. Core Retail Sales are out at 8:30 AM EST. This is major.
4. Import Prices are out at 8:30 AM EST. This is major.
5. Business Inventories are out at 10 AM EST. This is not major.
I's like to switch gears and discuss the Swiss Franc. The Swiss Franc is a currency that trend traders like to use as when it embarks on a path (up or down) it tends to stay on that path. In other words it usually doesn't have a lot of sideways movement. If you like trend trading this is an ideal instrument. The SF generally tends to follow the Euro in terms of direction, in fact if you looked at both side by side the patterns are similar. So liken to the Financials (the USD and Bonds) that we talk about; in a correlated market the SF and Euro should be tandem with one another as opposed to having an inverse relationship (USD vs Gold or Crude). This means that you could use the Euro for confirmation if placing a trade. The Swiss Franc generally makes a move sometime between 8 - 8:30 AM EST. Please note the chart below is a new, enhanced version of TFT. In the near future I'll be speaking with John Karnas, CEO of TFT regarding this.
|Chart Courtesy of Trend Following Trades|
Yesterday we said our bias was to the downside as the markets weren't correlated. Why? The USD and Gold were both trading higher, Japan had reported not too stellar GDP numbers and Europe was lower. The net result being that the Dow dropped 6 points. Not much to be sure but lower nonetheless. But as readers of this newsletter, you knew that at 6 AM. Today we are not dealing with a correlated market however our bias is to the upside. Could this change? Of Course. Remember anything can happen in a volatile market.
TraderPlanet has agreed to host a webinar with Mr. Dan Cook, Director of Business for Nadex to be held today at 4:40 PM EST. Having interviewed Dan myself, I can tell you that Dan is not a boring speaker and no doubt you will learn something about Binary Options at this session. I strongly urge you to attend if have any curiosity about binaries and how they work. The link to attend is: http://www.traderplanet.com/events/register/941/?a=1960
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:
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:
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 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 September crude dropped to a low of 105.05 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.
- Budget Battle - ongoing.
- Debt Ceiling in the late August/September 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 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.
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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.