As of this writing 5:05 AM EST, here’s what we see:
US Dollar –Down at 82.480, the Sept US Dollar is down 153 ticks and is trading at 82.480.
Energies – August Oil is up at 95.90.
Financials – The September 30 year bond is up 25 ticks and is trading at 135.19.
Indices – The September S&P 500 emini ES contract is up at 1577.50 and is up 37 ticks.
Gold – The August gold contract is trading up at 1286.60 and is up 95 ticks from its close.
Initial Conclusion: This is a nearly 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 up and the US dollar is trading lower which is correlated. Gold is trading higher which is 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.
Asia closed mixed with about half the exchanges closing higher and the other closing lower. The good news is the Shanghai exchange that caused the problem yesterday closed fractionally lower. As of this writing all of Europe is trading higher.
Possible challenges to traders today is the following
1. Core Durable Goods Orders are out at 8:30 AM EST. This is major.
2. Durable Goods are out at 8:30 AM EST. This is major.
3. S&P Case Schiller HPI is out at 9 AM EST. This is major.
4. HPI is out at 9 AM EST. This is major.
5. CB Consumer Confidence is out at 10 AM EST. This is major.
6. New Home Sales is out at 10 AM EST. This is major.
7. Richmond Manufacturing Index is out at 10 AM EST. This is major.
Yesterday we said our bias was to the downside as the Bonds weren't correlated with the USD and Gold was trading lower. The net result? The Dow dropped 139 points and the other indices didn't fare too well either. Today the markets aren't correlated with the culprit being Bonds. If the Bonds were trading lower we would have a completely correlated market to the upside, however our bias is to the upside today. Asia has started to rebound and Europe is trading higher. Bear in mind that we have a number of major reports today that could drive the markets in any direction. Could this change? Of Course. Remember anything can happen in a volatile market.
On Sunday evening the Shanghai exchange dropped by 5.3% which was the biggest drop for this market since August, 2009 when it dropped by 6.7%. This in turn caused the Asian markets to drop significantly which in turn effected Europe and eventually the US markets. Are we seeing more Asian Contagion whereby what happens in the Far East will eventually effect the US? Shanghai is significant as China is now the world's number 2 economy and the US is tied to China whether we like it or not but I guess that's one of the "benefits" of outsourcing. Sounds great going in and any Accountant can easily cost justify but there are ramifications. One of those ramifications are if they have a downturn, it will easily affect the US as it could mean orders placed here won't be filled by Chinese suppliers and US firms will have late and backlogged orders which will be reflected in quarterly earnings and we all know what that means... Wouldn't it be "innovative" if American companies started to produce their own goods again? Guess nobody thought about a backup plan, just in case...
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 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:
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 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 August crude dropped to a low of 92.68 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 93 a barrel and resistance at 97. 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.
- Budget Battle - ongoing.
- Debt Ceiling in the August time frame.
- Asian Contagion - 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 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.
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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.