As of this writing 5:30 AM EST, here’s what we see:
US Dollar –Down at 83.420, the US Dollar is down 285 ticks and is trading at 83.420.
Energies – July Oil is down at 92.45.
Financials – The June 30 year bond is up 6 ticks and is trading at 142.26.
Indices – The June S&P 500 emini ES contract is down at 1643.00 and is down 16 ticks.
Gold – The June gold contract is trading up at 1407.01 and is up 158 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 down and the US dollar is trading lower which is not correlated. Gold is trading higher which is correlated with the US dollar trading lower. 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 lower with the Nikkei down 737 points. As of this writing Europe is trading mixed with the German DAX down and London and Paris trading fractionally higher.
Possible challenges to traders today is the following
1. Preliminary GDP is out at 8:30 AM EST. This is major.
2. Preliminary GDP 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. Pending Home Sales are 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. Crude Oil Inventories are out at 11 AM EST. This will move the crude market.
Yesterday we said our bias was to the downside as it's only natural that the Smart Money will take capital off the table after a large run up. The net result? The Dow dropped 106 points and all the indices closed lower. Today we are not dealing with a correlated market and our bias is to the downside. Why? All of Asia closed lower, currently Europe is trading mixed, the Bonds are higher which is not bullish for the markets and Gold is trading above 1400 an ounce which we haven't seen in awhile. This would suggest that the fear factor has returned. Could this change? Of Course. Remember anything can happen in a volatile market.
As expected the markets moved lower yesterday after a massive run up on Tuesday. All indices closed lower and there was no major economic news. It seemed as though the fear factor returned to the markets as Gold traded higher yesterday. If you read the headlines they all seemed to be fearful of the Fed pulling the plug on QE3. The fact is we do not know that nor do we know when or if the Fed will do so. Much of this will be determined as economic reports come in and additional I suspect that later in the summer; probably around late August we will see a showdown in DC over the budget as what we have now will expire on September 30th to coincide with the fiscal year. I'm not so certain that the Fed will want to slowdown anything until this issue is resolved. Today we have 4 major economic reports that can drive the markets in any direction. Be mindful of this if trading today.
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 April I had the opportunity to interview Mr. Dan Cook, Director of Business Development for Nadex.com Nadex is an exchange that is devoted solely to binary options. Recently there's been quite a bit of misinformation regarding Binary Options and how they work. Some have even speculated that opening a Binary Option trading account is the same as identity theft. My objective is to dispel these myths and to alert the retail trader as to what a binary option is, how to trade them, how to amend an order and how to exit a trade for profit. Nadex is a Chicago based exchange that abides by the rules of CFTC. I've created an eBook that will discuss and show how a trader can capitalize on this innovative instrument. This is an 8 page eBook loaded with charts, diagrams etc. Each chart/diagram shown has been approved by Nadex and has gone thru their compliance department. When last I heard compliance departments for exchanges are tough when it comes to misrepresentation. Feel free to download and to share with those you know. It's time we saw some innovation.... To View and Download this article, go to:
https://markettealeaves.sharefile.com/d/s59fb4ac49ca47508
My interview with Dan can be viewed at:
http://youtu.be/ENRRbwH6A_o
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. Yesterday July crude dropped to a low of 92.72 a barrel and held. Currently is trading at around the 92.45 a barrel mark and was actually lower this morning. 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 92.00 a barrel and resistance at 98. 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.
- European Contraction - happening now
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 11 AM when the inventory numbers are released and 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.investing.com/analysis/rockwell-trading-ceo-heitkoetter:-a-simple,-timeless-trading-strategy-166093 http://www.barchart.com/headlines/story/10110400/leadership-or-lack-thereof
http://www.barchart.com/headlines/story/9971005/german-factory-orders-up-us-down
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 blogs.
