Good Morning Traders,
As of this writing 6:00 AM EST, here’s what we see:
US Dollar –Up at 81.440, the Sept US Dollar is up 48 ticks and is trading at 81.440.
Energies – October Oil is up at 106.56.
Financials – The September 30 year bond is up 4 ticks and is trading at 131.30.
Indices – The September S&P 500 emini ES contract is down at 1660.75 and is down 3 ticks.
Gold – The October gold contract is trading up at 1396.80 and is up 12 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 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 down and the US dollar is trading higher which is 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 mainly higher with the exception of the Nikkei and Singapore exchanges which closed lower. As of this writing Europe is trading lower. London has a bank holiday today.
Possible challenges to traders today is the following
1. Core Durable Goods are out at 8:30 AM EST. This is major.
2. Durable Goods are out at 8:30 AM EST. This is major.
Currencies On Friday the move on the Swiss Franc did not occur until 10 AM EST due to the release of the New Home Sales numbers. Interestingly enough if you follow what we teach in terms of Market Correlation and compare the Swiss Franc to the USD, you would notice that at 10 AM the USD had reached a high and began to sell off. The Swiss Franc on the hand took off at around that same time proving correlation. 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|
On Friday we said our bias was neutral as the markets weren't correlated and didn't seem to have sense of itself. A neutral bias means the markets could in any direction and do so on a dime. Despite the fact that New Home Sales came is less than expected, the major market mover turned out to be Steve Ballmer resigning from Microsoft. As such the Dow gained 47 points and the other indices gained as well. Today we are not dealing with a correlated market and our bias is to the downside. Could this change? Of Course. Remember anything can happen in a volatile market.
As many of you know I have a Technology background and I wanted to relate a story to you that you might find interesting. At the end of August, 1995 I was working for an Alliance Partner of SAP as their Business Development Manager. We were invited to the Microsoft Headquarters in Seattle to discuss guess what? Windows 95. One fellow who was in attendance and represented Microsoft went around the room to introduce himself. He asked me "hey Nick how you doing" and before I could give an answer he slapped me on the back and said "great". Turns out the fellow was Steve Ballmer. Steve began his presentation talking about all the attributes of Windows 95. One person asked "Steve, how much Internet cache will Windows 95 have?" Steve proceeded to take out his wallet and counted up all the bills he had in his wallet!! I kid you not. After laughing hysterically at this a technical guru did answer the question but we kinda got the impression that you shouldn't ask Steve technical questions. The point of this story is simply this; Steve Ballmer was never the technical guru that Bill Gates was or even Paul Allen for that matter. Steve's claim to fame is that he is a "people person". He the guy you send in to motivate the troops in a positive manner. Believe it or not, I'll miss Steve Ballmer. He is the last vestige of entrepreneurs who helped to make Silicon Valley what it is. At the time that Microsoft first went public in 1986 (my 1st year in Technology) you could have taken all the scions of Silicon Valley and ask them what is your greatest asset? I would venture to say that to a person, they would have answered "my people, my people are my greatest asset". That element is somehow missing in today's world...
In case you missed it, last Wednesday 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
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:
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 to the downside. 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. On Friday October crude dropped to a low of 104.30 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 $105.51 a barrel and resistance at 107.42. 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 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.