As of this writing 5:00 AM EST, here’s what we see:
US Dollar –Up at 81.125, the Sept US Dollar is up 210 ticks and is trading at 81.125.
Energies – October Oil is down at 104.65.
Financials – The September 30 year bond is down 6 ticks and is trading at 131.05.
Indices – The September S&P 500 emini ES contract is down at 1647.00 and is down 14 ticks.
Gold – The October gold contract is trading down at 1360.80 and is down 118 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 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.
Asia closed mainly lower with the exception of the Nikkei which closed higher and the Shanghai that closed flat. As of this writing Europe is trading lower with the exception of the Paris exchange which is trading fractionally higher.
Possible challenges to traders today is the following
1. Existing Home Sales are out at 10 AM EST. This is major.
2. Crude Oil Inventories are out at 10:30 AM EST. This will move the crude market.
3. FOMC Meeting Minutes are out at 2 PM EST. This is major.
Currencies Yesterday the Swiss Franc made a double move. At 8:35 a short play unfolded and at around 9 AM a long play turned up. There was no economic news at all to drive it in either direction so what we saw was inverse correlation with the USD. When the Swiss Franc moved lower at 8:35 the USD hit a low and advanced. At around 9 AM when the Swiss Franc moved higher, the USD declined. 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. 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 downside. Why? The Gold was trading lower and the Bonds were trading up. As with Monday there was no economic reports to drive the markets in any direction, the markets went into and out of positive territory all session long. The net result being that the Dow lost 8 points. Today we are not dealing with a correlated market however our bias is neutral. Could this change? Of Course. Remember anything can happen in a volatile market.
It seems that this week thus far has been a major chop for the markets. The entire financial world appears to be hinging on what the FOMC Meeting minutes will say. It reminds me of what we saw last month in July when the "Taper Caper" was rampant and everyone was looking for a clue to determine "will they taper, if so, when"? My take on that is the Fed will taper when they do and not a minute sooner. I personally don't think they will taper in this calendar year. I could be wrong of course but it would seem to me Big Ben and his "capos" will want to analyze the entire calendar year before making that decision. I do think that they'll meet in December and decide go/no go. Again pure subjection on my part. If you think that this is Taper Caper, wait until we get to Jackson Hole...
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 October 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 $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 10:30 AM when the inventory numbers are released and 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.