As of this writing 5:00 AM EST, here’s what we see:
US Dollar –Down at 80.950, the Sept US Dollar is down 217 ticks and is trading at 80.950.
Energies – July Oil is down at 95.30.
Financials – The September 30 year bond is up 29 ticks and is trading at 139.21.
Indices – The June S&P 500 emini ES contract is down at 1602.25 and is down 30 ticks.
Gold – The August gold contract is trading down at 1386.90 and is down 56 ticks from its close.
Initial Conclusion: This is not a correlated market. The dollar is down- and oil is down- which is not normal and 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 lower which is not 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.
All of Asia closed lower. As of this writing all of Europe is trading lower. Asia has been selling off dramatically this entire week and has wrecked havoc in both Europe and the US. The Japanese are adamant about keeping the Yen low so as to make their products and services lower price wise. Ironically this is not working out well for them because over the past week, the Yen has risen. When a country's currency goes up, what does that mean? It means their equity markets are going down. What happened to the Nikkei recently? It's gone down. The West is apparently asleep at the wheel with Europe dealing with recession and high unemployment and the US not knowing where it even stands. Seemingly we are in the midst of an economic downturn. When you see the Bonds trading higher than anything else, it only means one thing: traders are fleeing to the "safety" of bonds.
Possible challenges to traders today is the following
1. Core Retail Sales are out at 8:30 AM EST. This is major.
2. Retail Sales are out at 8:30 AM EST. This is major.
3. Unemployment Claims are out at 8:30 AM EST. This is major.
4. Import Prices are out at 8:30 AM EST. This is not major.
5. Business Inventories are out at 10 AM EST. This is not major.
6. Natural Gas Supply is out at 10:30 AM EST. This will move the Nat Gas market.
7. 30 Year Bond Auction starts at 1 PM EST. This could affect afternoon trading.
Yesterday we said our bias was to the upside as all of the futures were pointing up. Although the futures weren't correlated, I truly believed that after 2 down days the Smart Money would be putting capital back on the table. The net result? The Dow dropped 127 points and the other indices dropped as well. Today the markets aren't correlated and hence our bias is neutral. Additionally we have major economic reports that could drive the markets in any direction today. Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday it appeared as though the markets wanted to go higher. Europe was starting to trade to the upside, the Indices were higher as well as Gold. When the opening bell rang, the markets went up initially and then mid-morning slide back into negative territory and remained there the rest of the day. The only bright spot was crude, that did well. All of this with no major economic news to report. Today is critical as an adage on the street is 3 days make a trend. If today isn't positive, it will mark a trend to downside. Could it be that the June Swoon is becoming a reality? As always we'll have to monitor and see...
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 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 July crude dropped to a low of 94.46 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.
- 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 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.forexcrunch.com/personal-spending-deep-sixs-rally/
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.
