As of this writing 5:15 AM EST, here’s what we see:
US Dollar –Up at 82.445, the Sept US Dollar is up 18 ticks and is trading at 82.445.
Energies – September Oil is down at 107.85.
Financials – The September 30 year bond is up 2 ticks and is trading at 132.03.
Indices – The September S&P 500 emini ES contract is up at 1701.50 and is up 5 ticks.
Gold – The August gold contract is trading down at 1287.30 and is down 237 ticks from its close.
Initial Conclusion: This is not a correlated market. The dollar is up+ and oil is down- which is 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 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.
Asia closed higher mainly higher with the exception of the Indian Sensex which closed lower. As of this writing Europe is trading mixed.
Possible challenges to traders today is the following
1. Non-Farm Employment Change is out at 8:30 AM. This is major.
2. Unemployment Rate is out at 8:30 AM EST. This is major.
3. Average Hourly Earnings is out at 8:30 AM EST. This is not major.
4. Core PCE Price Index is out at 8:30 AM EST. This is not major.
5. Personal Income is out at 8:30 AM EST. This is major.
6. Personal Spending is out at 8:30 AM EST. This is major.
7. Factory Orders are out at 10 AM EST. This is major.
8. FOMC Bullard Speaks at 12:15 PM EST. This is major.
Currencies As a follow up to what happened yesterday on the Aussie Dollar. We said that a move would occur probably around 9 AM EST as we had numerous major reports around the 8:30 AM EST time frame. A move did occur around that time frame in fact it was at 9:10 AM (see chart below). Today we have major news out at 8:30 AM EST so the same rule applies. We believe the AUD will make a move (either long or short) probably around 9 AM EST. Time will tell if we are correct in this regard and as usual we'll have to monitor and see.
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Yesterday we said our bias was to the upside as the Bonds were lower, Gold was trading higher and both Asia and Europe were trading higher. The net result? The Dow jumped 128 points and the S&P breached the 1700 mark for the first time ever. Today the markets aren't correlated but it is Jobs Friday and as my followers already know my bias is neutral as historically speaking the market doesn't act with any sense of normalcy on this day. Could this change? Of Course. Remember anything can happen in a volatile market.
Today we'll get our first insight as to what the Fed is thinking as FOMC Member Bullard speaks at 12:15 PM EST. Remember the Fed did not conduct a press conference after the FOMC statement on Wednesday so this could potentially reveal some clues....
Many of my readers have been asking me to spell out the rules of Market Correlation. Today 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 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:
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. Yesterday September crude dropped to a low of 105.32 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 $105 a barrel and resistance at 110. 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 August 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:
http://www.barchart.com/headlines/story/10598425/when-perception-becomes-reality
http://www.forexcrunch.com/the-taper-caper/
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
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