As of this writing 5:30 AM EST, here’s what we see:
US Dollar –Up at 81.290, the Sept US Dollar is up 83 ticks and is trading at 81.290.
Energies – September Oil is down at 107.20.
Financials – The September 30 year bond is down 145 ticks and is trading at 131.20.
Indices – The September S&P 500 emini ES contract is up at 1658.00 and is up 9 ticks.
Gold – The October gold contract is trading down at 1361.00 and is down 1 tick 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 up and the US dollar is trading higher which is not 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 lower. As of this writing all of Europe is trading lower.
Possible challenges to traders today is the following
1. Building Permits are out at 8:30 AM EST. This is major.
2. Housing Starts are out at 8:30 AM EST. This is major.
3. Preliminary non-Farm Productivity is out at 8:30 AM EST. This is not major.
4. Preliminary Unit Labor Costs are out at 8:30 AM EST. This is not major.
5. Preliminary UOM Consumer Sentiment is out at 9:55 AM EST. This is major.
6. Preliminary UOM Inflation Expectations is out at 9:55 AM EST. This is major.
Currencies As a follow up to our discussion yesterday concerning the Swiss Franc, the chart below will show a blue arrow at around 8:30 AM EST which would present a long opportunity for this currency. As a trader you could have netted 20 -30 ticks on this trade. Bear in mind that each tick on the Swiss Franc is worth $12.50 USD. Notice that the background color in the chart turned green as the morning progressed which is indicative of a long trade. Please note that in the near future I'll be speaking with John Karnas, CEO of Trend Following Trades to discuss the enhanced version of this charting package.
|Chart Courtesy of Trend Following Trades|
Yesterday we said our bias was to the upside. Why? The USD was trading lower and Gold was trading higher. However some not too stellar economic reports drove the markets lower. The net result being that the Dow lost 226 points and the other indices lost ground as well. However for those who listened to our Market Bias video, we warned everyone to be careful trading as 10 economic reports with 6 of them being major leads to major volatility. Today we are not dealing with a correlated market and quite frankly this market doesn't seem to have any sense of itself, therefore our bias is neutral as it could go in any direction. Could this change? Of Course. Remember anything can happen in a volatile market.
I don't know if it was the fact that FOMC Member Bullard spoke pre-market or the not too stellar economic reports but clearly the markets were on a downward spiral from the opening bell. The major reports: Empire State Manufacturing and the Philly Fed didn't leave a great deal of confidence for traders yesterday. One good thing today is no one from the Fed is speaking so that could be a positive sign...
As a follow up to the Binary Options webinar with Mr. Dan Cook, Director of Business for Nadex; the webinar was very informative and is about an hour in length. TraderPlanet has agreed to offer a replay of the session. As promised, here's the link from TraderPlanet: http://www.traderplanet.com/videos/view/113429-maximize-your-trading-using-binary-options/
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 last Thursday and Part Two will be released sometime next 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 a follow up to the first article on Market Correlation, I've produced a second segment on this subject matter and Futures Magazine has elected to publish it. It 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 neutral. 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 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. Yesterday September crude dropped to a low of 106.60 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 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 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:
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.