As of this writing 5:15 AM EST, here’s what we see:
US Dollar –Up at 84.250, the Sept US Dollar is up 799 ticks and is trading at 84.250.
Energies – August Oil is down at 101.08.
Financials – The September 30 year bond is down 20 ticks and is trading at 134.20.
Indices – The September S&P 500 emini ES contract is up at 1624.00 and is up 60 ticks.
Gold – The August gold contract is trading down at 1233.70 and is down 177 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 lower 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. As of this writing all of Europe is trading mixed with the FTSE trading higher while the other European exchanges are trading fractionally lower.
Possible challenges to traders today is the following
1. Non-Farm Employment Change is out at 8:30 AM EST. This is major.
2. Unemployment Rate is out at 8:30 AM EST. This is major.
3. Average Hourly Earnings are out at 8:30 AM EST. This is major.
On Wednesday we said our bias was to the downside as the Bonds weren't correlated with the USD. We also said that we have 8 economic reports, 6 of which were major. However it appeared as though the Smart Money wanted to go into the holiday on a positive note and the Dow gained 57 points in an abbreviated session. Whereas the markets aren't correlated due to the Bonds, our bias is neutral. Given that this is Jobs Friday, anything can happen today. It would seem as though the Europeans are waiting until 8:30 AM EST when the announcement is made before making any trading decisions. Could this change? Of Course. Remember anything can happen in a volatile market.
On Wednesday we said our bias was to the downside as the Bonds and USD weren't correlated and we had 8 economic reports, 6 of which were major. Well the ADP Employment report came in better than expected at 8:15 AM and the markets were off. Unemployment claims came in better than expected and that was even better. Today is the all important Jobs Friday and as such I don't trade on that day as historically the markets have never proven to act with any sense of normalcy on this day, at least for me. Given that it is the day after a major holiday, I would expect volume to be light and I suspect that anyone who went to work today will be soon be heading for the exits after the report comes out. But as in all things we'll have to monitor and see.....
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 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 Wednesday August crude dropped to a low of 100.52 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.
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 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/10598425/when-perception-becomes-reality
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.
