As of this writing 5:35 AM EST, here’s what we see:
US Dollar –Up at 83.220, the Sept US Dollar is up 68 ticks and is trading at 83.220.
Energies – August Oil is up at 97.65.
Financials – The September 30 year bond is up 8 ticks and is trading at 135.27.
Indices – The September S&P 500 emini ES contract is up at 1612.75 and is up 25 ticks.
Gold – The August gold contract is trading down at 1202.00 and is down 98 ticks from its close.
Initial Conclusion: This is not a correlated market. The dollar is up+ and oil is up+ which is not 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 higher which is not 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 higher, mostly to the tune of triple digits. As of this writing all of Europe is trading mixed with the London and Frankfurt exchange trading fractionally higher, the rest of Europe is trading lower.
Possible challenges to traders today is the following
1. FOMC Member Stein speaks at 8 AM EST. This is not major.
2. Chicago PMI is out at 9:45 AM EST. This is major.
3. Revised UOM Consumer Sentiment is out at 9:55 AM EST. This is major.
4. Revised UOM Inflation Expectations are out at 9:55 AM EST. This is major.
Yesterday we said our bias was to the upside as we were dealing with a nearly correlated market with the only culprit being the Bonds. The Net Result? The Dow gained 114 points and the other indices rose as well. At one point the market was up over 155 points and the Dow retook the 15,000 mark. Today the markets aren't correlated and it seems as though every instrument except Gold is trading higher therefore our bias is neutral. Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday we poised the question do the US markets follow Europe? Well after a choppy start in Europe (At one point yesterday morning they were down), the market rebounded and had a positive effect on the US. Of course excellent economic news didn't hurt either. Excellent pending home sales plus good personal income growth all boded well for the US markets. Unemployment Claims lower than expected needs to be taken with a grain of salt however as the more people who exhaust their benefits are now considered "employed" by the Dept. of Labor. Getting back to my question, I recall recently interviewing Markus Heitkoetter of Rockwell Trading and asking him that question. Markus commented that there was a time when the European exchanges would wait for the US to open and give direction, however now not so much. Markus is German and has spent many years trading in Europe, at the point that I did the interview with him, he had just returned from Europe after teaching a week long trading session. Another difference he pointed out is the attitude between European and American traders. He said "if I asked a European why they took a trade they can give me 5 compelling business reasons why they took it", if I asked a North American: "because it felt good." He did acknowledge that the North Americans are getting better at it but it makes you wonder, doesn't it? One of the reasons why I interview market leaders is so you can benefit from their knowledge and experience and the one thing all of them have said and reiterated is the importance of planning. In other words, it's not an accident...
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:
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 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 August crude dropped to a low of 95.49 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 94 a barrel and resistance at 98. 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 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 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.