As of this writing 4:50 AM EST, here’s what we see:
US Dollar –Up at 83.360, the Sept US Dollar is up 197 ticks and is trading at 83.360.
Energies – August Oil is down at 105.39.
Financials – The September 30 year bond is up 4 ticks and is trading at 134.02.
Indices – The September S&P 500 emini ES contract is up at 1674.25 and is up 16 ticks.
Gold – The August gold contract is trading up at 1281.10 and is up 36 ticks from its close.
Initial Conclusion: This is not a correlated market. 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 up and the US dollar is trading higher which is not correlated. Gold is trading higher which is not 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. The Nikkei was closed for a bank holiday. As of this writing most of Europe is trading higher.
Possible challenges to traders today is the following
1. FOMC Member Tarullo Speaks at 8 AM EST. This is major.
2. Core Retail Sales is out at 8:30 AM EST. This is major.
3. Retail Sales are out at 8:30 AM EST. This is major.
4. Empire State Manufacturing Index is out at 8:30 AM EST This is major.
5. Business Inventories are out at 10 AM EST. This is not major.
On Friday we said our bias was to the downside as the markets were correlated as such. Whereas the markets spent most of the day in negative territory, at the last ten minutes or so they managed to squeak out a gain. The Dow closed higher to the tune of 3 points. Today we aren't dealing with a correlated market however out bias is to the upside today. Gold is trading higher and both Asia and Europe are trading higher. Could this change? Of Course. Remember anything can happen in a volatile market.
On Friday our bias was to the downside as the markets were correlated as such. Despite a not too stellar UOM consumer sentiment and inflation expectation number the markets squeezed a gain although not by much. Our concern on Friday was FOMC Member Bullard and what he would say. It seems that of late each time one of these members speak (regardless of stature), they have a way of moving the markets. Of course this is all predicated on what they say. Fortunately for the bulls, Bullard believes the Fed should continue with the buyback program as his concern is inflation. Apparently this was enough for the bulls to charge forward into a higher close. The question now is will we be so fortunate with Member Tarullo today? Time will tell...
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 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:
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 104.36 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.
- 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:
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.