As of this writing 5:05 AM EST, here’s what we see:
US Dollar –Up at 81.490, the Sept US Dollar is up 267 ticks and is trading at 81.480.
Energies – October Oil is up at 104.32.
Financials – The September 30 year bond is down 21 ticks and is trading at 130.05.
Indices – The September S&P 500 emini ES contract is up at 1644.00 and is up 30 ticks.
Gold – The October gold contract is trading up at 1370.50 and is up 4 ticks from its close.
Initial Conclusion: This is not a correlated market. The dollar is up+ and oil is up+ which is not 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 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 mixed with about the exchanges closing higher and the other half lower. As of this writing Europe is trading higher.
Possible challenges to traders today is the following
1. Unemployment Claims are out at 8:30 AM EST. This is major.
2. Flash Manufacturing PMI is out at 9 AM EST. This is not major.
3. Home Price Index is out at 9 AM EST. This is major.
4. CB Leading Index is out at 10 AM EST. This is major.
5. Natural Gas storage is out at 10:30 AM EST. This will move the Nat Gas market.
6. Jackson Hole Meeting - All Day. This is major.
7. Treasury Secretary Lew speaks at 3:15 PM EST. This is major.
Currencies Yesterday given that the markets was sitting on its hands waiting for the FOMC Meeting Minutes, there was no 8:30 or 9 AM move. In fact the move didn't occur until after 10 AM when Existing Home Sales numbers were released. This was a short trade as indicated by the blue down arrow. 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.
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| Chart Courtesy of Trend Following Trades |
Yesterday we said our bias was neutral as we felt the markets could move in any direction given that we had the FOMC Meeting minutes. Why? The markets weren't correlated, Asia and Europe were both trading lower. The net result being that the Dow dropped 105 points and the other indices closed lower. Today we aren't 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.
In case you missed it, yesterday Financial Juice ran its commentary on the FOMC Meeting minutes. Financial Juice had as it's commentators 2 legendary traders: Markus Heitkoetter of Rockwell Trading and Gavin Holmes of Tradeguider. I was also asked to be a commentator and I couldn't be more honored. So if you're looking for an unbiased commentary on the FOMC Meeting minutes, then feel free to visit: http://www.youtube.com/watch?v=VDiazHJ0h9Q
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 now published Part 2 of that story. This piece has both the interview I did with Dan and a link to his webinar of Binary Options. 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/
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 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:
http://www.futuresmag.com/2013/08/16/how-to-exploit-and-profit-from-market-correlation?ref=hp
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:
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 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 October crude dropped to a low of 103.54 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 $103.22 a barrel and resistance at 105.56. 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 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 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
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