As of this writing 5:55 AM EST, here’s what we see:
US Dollar –Down at 83.665, the Sept US Dollar is down 99 ticks and is trading at 83.665.
Energies – August Oil is up at 101.19.
Financials – The September 30 year bond is up 18 ticks and is trading at 136.17.
Indices – The September S&P 500 emini ES contract is down at 1597.00 and is down 41 ticks.
Gold – The August gold contract is trading up at 1245.70 and is up 23 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 lower which is not 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 mainly lower with the exception being the Nikkei which closed fractionally higher. As of this writing all of Europe is trading lower.
Possible challenges to traders today is the following
1. Challenger Job Cuts are out at 7:30 AM EST. This is major.
2. ADP Non-Farm Employment Change is out at 8:15 AM EST. This is major.
3. Trade Balance is out at 8:30 AM EST. This is major.
4. Unemployment Claims are out at 8:30 AM EST. This is major.
5. ISM Non-Manufacturing PMI is out at 10 AM EST. This is major.
6. Treasury Secretary Lew speaks at 10 AM EST. This is major.
7. Crude Oil Inventory is out at 10:30 AM EST. This will move the crude market.
8. Natural Gas Inventory is out at 10:30 AM EST. This will move the Nat Gas market.
Yesterday we said our bias was neutral as none of the instruments we track were correlated. The Net Result? The Dow dropped 43 points and the other indices dropped fractionally lower. Today we are not dealing with a correlated market and hence our bias is to the downside today. The Bonds are trading higher which is not correlated with the US Dollar trading lower. Asia closed lower and currently Europe is trading lower and we 8 economic reports; 6 of which are major. Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday we said our bias was neutral as it seemed as though every instrument (USD, Crude, Financials, Indices and Gold) all wanted to advance and as such there is and can be no market correlation in such a scenario. Yesterday reminded me of Friday where we saw the same situation occur and Friday saw a 114 point drop in the Dow. A neutral bias means beware, don't trade if you don't have a compelling reason to do so. Yesterday the markets opened nicely and moved up until Dudley spoke and informed everyone that the Fed hasn't determined when it will taper off the 85 Billion Dollar buyback program and that's all it took for the market to drop. Why? The markets had it in their mind that the Fed was going to do this sooner as opposed to later, some have even suggested that it would happen as early as September. But Bernanke NEVER said that. All he said was that the Fed may, I repeat may cutback next year depending upon economic conditions. Anyone who watched his press conference on FOMC Day heard the exact same thing, yet the press and the Smart Money took it completely out of context and now it's assumed that the Fed will taper in September. So when Dudley says something contrary to this, what happens? The market sells off. This is what happens when perception becomes reality....
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 downside. 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 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. Yesterday August crude dropped to a low of 97.78 a barrel and went no lower. 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 $100 a barrel and resistance at 102. 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.
Special Note: Be mindful if trading crude today. Overnight the August contract went to a high of $102.18 and anytime crude trades above $100.00 a barrel there is increased volatility. Addtionally the political strife in Egypt is causing a supply strain.
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 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 10:30 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.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.
