As of this writing 5:20 AM EST, here’s what we see:
US Dollar –Down at 82.410, the US Dollar is down 202 ticks and is trading at 82.410.
Energies – July Oil is up at 94.19.
Financials – The September 30 year bond is up 13 ticks and is trading at 140.02.
Indices – The June S&P 500 emini ES contract is up at 1613.50 and is up 22 ticks.
Gold – The August gold contract is trading up at 1401.00 and is up 25 ticks from its close.
Initial Conclusion: This is not a correlated market. The dollar is down- and oil is up+ which is 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 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.
Asia closed lower with the exception of the Indian Sensex exchange which closed higher. As of this writing all of Europe is trading higher.
Possible challenges to traders today is the following
1. Challenger Job Cuts are out at 7:30 AM EST. This is major.
2. Unemployment Claims are out at 8:30 AM EST. This is major.
3. ECB Minimum Bid Rate at 7:45 AM EST. This is major.
4. ECB Press Conference starts at 8:30 AM EST. This is major.
5. Natural Gas Storage is out at 10:30 AM EST. This will move the Nat Gas market.
Yesterday we said our bias was to the upside as the markets weren't correlated but our bias was to the upside because the Bonds was trading lower and Gold was trading up. We also said that there were 4 major economic reports that could move the markets and they did; to the downside. Today we aren't dealing with a correlated market and besides economic reports we also have the ECB Minimum Bid Rate which is the equivalent of our Federal Funds Rate, therefore our bias is neutral. Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday that there were 7 economic reports, 4 of which were major and could move the markets and they did to the downside. The Dow closed down by 217 points and the S&P and Nasdaq also dropped. Whereas the markets dropped at least this time they dropped for the right reasons. None of the economic reports met expectation. ADP Employment change came in lower than expected, Factory Orders came in lower than expected. At least this time around the press didn't try to put lipstick on a pig, so to speak as they've done so many times prior. I guess at some point reality does set in. The one report that I found interesting was Non-Manufacturing PMI which came in at 53.7 versus 53.4 expected. Any number above 50 shows expansion so it would seem that businesses are spending money but apparently they're not spending on employees. We'll know better on Friday when the monthly jobs report numbers are released.
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:
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 lower and the US Dollar is advancing. 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. Yesterday July crude dropped to a low of 93.43 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 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 lower and the US Dollar is advancing. 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 the economic reports 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.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 blogs.
