As of this writing 5:00 AM EST, here’s what we see:
US Dollar –Up at 83.150, the Sept US Dollar is up 235 ticks and is trading at 83.150.
Energies – August Oil is down at 104.73.
Financials – The September 30 year bond is up 17 ticks and is trading at 134.24.
Indices – The September S&P 500 emini ES contract is down at 1669.00 and is down 4 ticks.
Gold – The August gold contract is trading down at 1275.10 and is down 49 ticks from its close.
Initial Conclusion: Finally we have a correlated market, unfortunately it's correlated to the downside. The dollar is up+ and oil is down- which is normal and 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 higher which is 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.
Asia closed lower with the exception being the Nikkei and Indian Sensex which closed higher. As of this writing most of Europe is trading higher.
Possible challenges to traders today is the following
1. PPI is out at 8:30 AM EST. This is major.
2. Core PPI is out at 8:30 AM EST. This is major.
3. Preliminary UOM Consumer Sentiment is out at 9:55 AM EST. This is major.
4. Preliminary UOM Inflation expectation is out at 9:55 AM EST This is major.
5. FOMC Member Bullard speaks at 1 PM EST. This is major.
Yesterday we said our bias was to upside as most of the markets were correlated except the Bonds. The Net Result? The Dow gained 161 points and the other indices gained as well. Today we are dealing with a correlated market however it is correlated to the downside. As such our bias is to the down side today. It could be that after a solid week of gains the Smart Money wants to take money off the table. Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday we said the markets would go higher and they did; to the tune of triple digits for the Dow. This was despite a not too stellar Unemployment Claims number that showed an increase in claims. It would appear as though Mr. Bernanke's comments concerning not being in a rush to raise short term interest rates did the trick. Today we have FOMC Member Bullard speak at 1 PM EST and hopefully he will continue Bernanke's rhetoric concerning interest rates.
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.
As an update on this issue, last week the White House extended the employer's mandate to 2015 versus 2014 and currently the house will vote on a similar measure for individuals. The question is can you trust the folks in DC to implement anything?
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
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 lower and the US Dollar is advancing. 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 104.31 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 $103 a barrel and resistance at 108. 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 lower and the US Dollar is advancing. 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.
