As of this writing 4:35 AM EST, here’s what we see:
US Dollar –Up at 82.055, the Sept US Dollar is up 460 ticks and is trading at 82.055.
Energies – August Oil is down at 96.36.
Financials – The September 30 year bond is down 29 ticks and is trading at 137.03.
Indices – The September S&P 500 emini ES contract is down at 1612.75 and is down 44 ticks.
Gold – The August gold contract is trading down at 1313.40 and is down 610 ticks from its close.
Initial Conclusion: This is not a correlated market. The dollar is up+ and oil is down- which is normal but 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 lower which is correlated with the US dollar trading up. 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 some exchanges down by triple digits. As of this writing all of Europe is trading down. It would appear as though no one liked what Mr. Bernanke said as global markets are clearly in retreat. Asia closed down by triple digits, no doubt as a follow thru with what happened yesterday on the US exchanges. Apparently at this hour, Europe is following that trend. The question is will the US reverse course or have the strength to reverse course?
Possible challenges to traders today is the following
1. Unemployment Claims are out at 8:30 AM EST. This is major.
2. Flash Manufacturing PMI is out at 9 AM EST. This is major.
3. Existing Home Sales are out at 10 AM EST. This is major.
4. Philly Fed Manufacturing Index is out at 10 AM EST. This is major.
5. CB Leading Indicators are out at 10 AM EST. This is major
6. Natural Gas Supplies are out at 10:30 AM EST. This will move the Nat Gas market.
Yesterday we said our bias was neutral because it was FOMC Day and historically speaking the markets do not act with any sense of normalcy. The net result? The Dow dropped 206 points and the other indices lost ground as well. Currently the markets aren't correlated but our bias is Neutral. Why? The Bonds are trading much lower and this is always bullish for the markets and indices. Additionally we have major economic news that could move the markets in any direction today. Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday we said to be alert for the language on the FOMC Statement. The markets did not move much after the announcement on the Federal Funds Rate and apparently were waiting for the news conference to be held at 2:30 PM EST. Well the news conference started and apparently no one liked what Chairman Bernanke said as the markets proceeded to fall. Ironically the FOMC is neither changing the FFR nor is it currently tapering off QE but because he said they might do so (again the operative word is "might") if the economy picks up steam, the markets fell off. All he said was what he's stated previously on multiple occasions and yet the market falls off. Can you imagine if he said "we're never going to taper off QE, QE is here to stay forever". Do you think anyone would've bought it? I watched that press conference and he must have said at least a dozen times "the targets that we specified are a threshold, not a trigger". What he was referring to are the target of 6.5% unemployment rate and inflation above 2.5%. These are targets the FOMC declared in December, 2012 and yet now it's an issue. What he was further saying is that if these targets are met then the Fed would look at the overall economic landscape prior to tapering off the buyback program or increasing the FFR. Yet not one reporter even picked up on this. And you wonder why I don't trade FOMC Day?
On Friday, June 7th I had the opportunity to interview Mr. Sal Spedele regarding ObamaCare. Sal is a 20 year veteran of the Insurance Industry and we spoke at length regarding the ramifications of the Patient Protection and Affordable Care Act aka ObamaCare. If you are at all concerned about the future of Health Insurance in the United States, then you need to listen to this interview and act on it. Sal and his team is offering complimentary advisory services to inform you of your rights and ramifications of this Act. To download the article on ObamaCare, go to: https://markettealeaves.sharefile.com/d/s978a806ae2e41569 To view my discussion with Sal: http://youtu.be/sR_ine0b5Ro
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
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 August crude dropped to a low of 97.79 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 96 a barrel and resistance at 99. 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 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 news is 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/asian-contagion/
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.
