As of this writing 5:20 AM EST, here’s what we see:
US Dollar –Up at 81.820, the Sept US Dollar is up 355 ticks and is trading at 81.820.
Energies – October Oil is down at 109.28.
Financials – The September 30 year bond is down 2 ticks and is trading at 132.13
Indices – The September S&P 500 emini ES contract is up at 1636.50 and is up 17 ticks.
Gold – The October gold contract is trading down at 1408.80 and is down 97 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 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 higher with the exception of the Shanghai exchange which closed fractionally lower. As of this writing all of Europe is trading higher.
Possible challenges to traders today is the following
1. Preliminary GDP is out at 8:30 AM EST. This is major.
2. Preliminary Price Index is out at 8:30 AM EST. This is major.
3. Unemployment Claims are out at 8:30 AM EST. This is major.
4. FOMC Member Bullard speaks at 8:50 AM EST. This is major.
5. Natural Gas Storage is out at 10:30 AM EST. This will move the Nat Gas market.
Currencies Yesterday the Swiss Franc made it's move at around 10 AM to coincide with the Pending Home Sales report. 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 around 10 AM the USD had already begun 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 ticks on this trade. Please note you could have taken the initial move at 10 AM or taken the move at around 10:30. So why did I point the arrows at 10:30 versus 10 AM? The news wasn't positive and the USD went down initially, popped back up and then proceeded to go down at around 10:30. 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 upside as both the Bonds and Gold were trading higher. As such the Dow gained 49 points and the other indices gained ground as well. You might have thought that the markets would be lower today due to a lackluster Pending Home Sales Report but the rules of Market Correlation said otherwise. Today we are not dealing with a correlated market however our bias is neutral as we think the market could be driven in any direction today. Could this change? Of Course. Remember anything can happen in a volatile market.
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
On another note I will be hosting a webinar today on Financial Juice regarding Market Correlation - what it is and how to use it. It will be at 2 PM EST and should you wish to attend, all you need do is go to www.financialjuice.com and click on the turquoise banner. No pre-registration is required.
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 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 109.25 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 $108.85 a barrel and resistance at 111.01. 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 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.