Good Morning Traders,
As of this writing 5:55 AM EST, here’s what we see:
US Dollar –Down at 81.310, the Dec US Dollar is down 328 ticks and is trading at 81.310.
Energies – October Oil is down at 106.65.
Financials – The December 30 year bond is up 28 ticks and is trading at 130.21
Indices – The December S&P 500 emini ES contract is up at 1700.00 and is up 72 ticks.
Gold – The October gold contract is trading up at 1315.70 and is up 73 ticks from its close.
Initial Conclusion: This is not a correlated market. The dollar is down- and oil is down- which is not normal but 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 lower which is correlated. Gold is trading higher which is correlated with the US dollar trading down. 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 exception of the Shanghai and Sensex exchanges. As of this writing all of Europe is trading higher.
Possible challenges to traders today is the following:
1. Empire State Manufacturing Index is out at 8:30 AM EST. This is major.
2. Capacity Utilization Rate is out at 9:15 AM EST. This is not major.
3. Industrial Production is out at 9:15 AM EST. This is not major.
Currencies
On Friday the Swiss Franc made it's move at after 10 AM EST as soon as all the economic news was released. The USD hit a high at around same time and the Swiss Franc took off. The USD falling only lent confirmation to the move. As a trader you could have netted 20-30 ticks on this trade. And you thought markets weren't correlated? Please note that starting this week we'll be rolling over to the December contract due to contract rollover.
 |
| Chart Courtesy of Trend Following Trades |
++9_13_2013.jpg) |
| USD - 9/13/13 |
Bias
On Friday we said our bias was to the downside as the markets were nearly correlated as such. The only missing ingredient was the Bonds trading lower. Other than that the markets were correlated to the downside. However the markets took a turn and went to the upside. The Dow gained 75 points and the other indices gained ground as well. Today we are not dealing with a correlated market however our bias is to the upside. Why? The dollar is trading lower and Gold is trading higher, both of which are bullish for the markets. Could this change? Of Course. Remember anything can happen in a volatile market.
On Friday we had what is tantamount to deplorable economic news. Core Retail Sales, Retails Sales down. Core PPI flat, PPI up (not good for consumer prices). Consumer Sentiment down and yet the markets advanced. How could this be? My subjective view is given the close proximity of the FOMC Meeting (this Wednesday) I suspect that traders felt the Fed won't be too keen on tapering Quantitative Easing (QE) given these reports. We've been saying for some time now that the effects of the sequester, the reduction of government spending will have an effect on a fragile economy with a jobless recovery at best. Want proof? Go to http://www.bls.gov/news.release/empsit.t15.htm and look at the U6 rate. This is the rate of unemployment for the entire working population of the Unites States, currently at 13.7 percent. Now you may look at this chart and say "well, it's gone down over the past year". Yes but it hasn't gone down fast to sustain a "recovery". When you cut off people whose only means of income is government support and don't create jobs fast enough; the only result can be reduced spending. I too agree that the Fed won't taper but I agree for a different reason. I don't think they'll taper because they know this "recovery" is fragile at best and will not want to do anything to drive the economy further down. In any case, we'll find out soon enough....
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
http://www.traderplanet.com/commentaries/view/164874-trader-tips-the-case-for-fundamental-analysis/
TraderPlanet published an article I produced called The Case for Fundamental Analysis. Feel free to visit and provide any comments you may have. In case you weren't aware Market Correlation is mainly fundamental analysis specific to Futures and the Futures markets.
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 lower and the US Dollar is declining. 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 107.23 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 $106 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.
Future Challenges:
- Budget Battle - ongoing.
- Debt Ceiling in the September time frame.
- Military Action in Syria? - September.
Crude oil is trading lower and the US Dollar is declining. 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.barchart.com/headlines/story/12241621/syria-turmoil-stirs-markets
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 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.
++9_13_2013.jpg){kind=link}
No comments:
Post a Comment