As of this writing 4:05 AM EST, here’s what we see:
US Dollar –Down at 84.680, the Sept US Dollar is down 9 ticks and is trading at 84.680.
Energies – August Oil is up at 103.27.
Financials – The September 30 year bond is up 4 ticks and is trading at 132.25.
Indices – The September S&P 500 emini ES contract is up at 1632.50 and is up 22 ticks.
Gold – The August gold contract is trading up at 1224.00 and is up 113 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.
All of Asia closed lower. As of this writing all of Europe is trading higher with some exchanges higher by triple digits.
Possible challenges to traders today is the following
1. No Major economic news to speak of..
2. Lack of economic news.
3. Consumer Credit is out at 3 PM EST. This could effect afternoon trading.
On Friday we said our bias was neutral as it was Jobs Friday and the Bonds weren't correlated with the USD. Well the numbers came out and showed 195,000 jobs created which exceeded expectation. The net result being that the Dow gained 147 points and the other indices gained as well. Today we are dealing with a nearly correlated market with the culprit being Bonds. If the Bonds were trading lower I would say we had a correlated market to the upside. This being said, our bias is to the upside today. Bear in mind that ECB President Mario Draghi will be speaking twice today, once at 8:30 AM and 9:30 AM EST and we have no idea what he going to talk about. Could this change? Of Course. Remember anything can happen in a volatile market.
On Friday we said our bias was neutral as it is Jobs Friday and historically speaking that day is usually volatile and the markets can go in any direction. This past Friday the jobs numbers came in at 195,000 and everyone is saying "great report, time for the Fed to taper." Really? Well the number of jobs created may be positive, but that's only half the story as the Unemployment Rate remained at an official 7.6%. What does that tell you? It tells me that that the unemployment rate isn't going down and that the number of new jobs created is offset by either the number of people who were let go or the number of people entering the workforce. This is not a net gain by sense of the word. The German Dax exchange was trading lower prior to the number coming out and guess what? It remained lower after the number was released. Even the FTSE that was trading higher prior to the number dropped afterward. Want proof? Look at charts below:
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Chart courtesy of Trend Following Trades (www.trendfollowingtrades.com)
The 1st blue arrow shows where the DAX was trading at 8:30 AM when the number was released, the 2nd arrow shows where it traded after 9 AM. Bottom line, the Europeans weren't fooled by this number. Want more proof? This article was written by Rex Nutting of Marketwatch.com; it shown here with his permission. http://www.marketwatch.com/story/hold-the-champagne-jobs-market-isnt-better-yet-2013-07-05?link=MW_home_latest_news
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:
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 Friday August crude dropped to a low of 100.94 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 $102 a barrel and resistance at 104. 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 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/good-jobs-report/
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.
