As of this writing 5:50 AM EST, here’s what we see:
US Dollar –Down at 83.100, the US Dollar is down 301 ticks and is trading at 83.100.
Energies – July Oil is up at 92.00.
Financials – The June 30 year bond is down 8 ticks and is trading at 142.26.
Indices – The June S&P 500 emini ES contract is up at 1631.75 and is up 9 ticks.
Gold – The June gold contract is trading up at 1395.20 and is up 26 ticks from its close.
Initial Conclusion: This is a correlated market, and it is correlated to the upside. The dollar is down- and oil is up+ which is normal and 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 down and the US dollar is trading higher which is 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. As of this writing all of Europe is trading lower.
Possible challenges to traders today is the following
1. Final Manufacturing PMI is out at 9 AM EST. This is not major.
2. ISM Manufacturing PMI is out at 10 AM EST. This is major.
3. Construction Spending is out at 10 AM EST. This is major.
4. ISM Manufacturing Prices is out at 10 AM EST. This is not major.
5. Total Vehicles Sales - All Day. This is major.
On Friday we said our bias was to the downside as the markets were correlated as such. The net result? The Dow dropped 209 points and all other indices fell as well. Today we are dealing with a correlated market to the upside hence our bias is to the upside. After Friday's selloff it could be that the Smart Money wants to prop the markets up. All of Asia closed lower probably due to Friday's selloff and currently Europe is trading lower. Bear in mind that we have 4 major economic reports which could drive the markets in any direction today. Could this change? Of Course. Remember anything can happen in a volatile market.
What a difference a day makes. On Friday we said the markets were correlated to the downside and they fell. The Dow by 209 points and S&P and Nasdaq as well. Apparently no one liked the Personal Spending report or Personal Income. Personal Spending showed a decline of minus 0.2 percent and Income was flat with no growth. In contrast business spending increased to 58.7 percent versus 50.4 expected. I wonder what businesses are spending on? It certainly isn't wages. Could it be that they're buying other businesses or stock in other companies? I wonder...
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/sdf8f77f6e2c4347a
My discussion with John can be viewed at:
http://youtu.be/uVwHpMq1604
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 higher and the US Dollar is declining. This is 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 July crude dropped to a low of 91.56 a barrel and held. Last night (Sunday) oil dropped to a low of 91.26 a barrel but presently is trading higher. 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 91.00 a barrel and resistance at 96. 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 higher and the US Dollar is declining. This is 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 economic 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.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.
