Good Morning Traders,
As
of this writing 5:20 AM EST, here’s what we see:
US Dollar –Down at 82.895, the Sept US Dollar is down 60 ticks and is trading at 82.895.
Energies – August Oil is down at 107.56.
Financials – The September 30 year bond is up 8 ticks and is trading at 134.29.
Indices – The September S&P
500 emini ES contract is down at 1678.00 and is down 10 ticks.
Gold – The August
gold contract is trading up at 1286.70 and is up 25 ticks from its close.
Initial Conclusion: This is not a correlated market. The dollar is down- and
oil is down- which is not 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 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 of the Hang Seng and Indian Sensex which closed higher. As
of this
writing Europe is trading lower.
Possible challenges to
traders today is the following
1. No Major Economic News.
2. Lack of Major Economic News.
Yesterday we said our bias was neutral as we felt the markets could be driven in any direction. The net result being that the Dow gained 78 points and the other indices gained as well. Today we are not dealing with a correlated market and our bias is to the downside. Why? The Bonds are trading higher and Europe is trading lower. Additionally there is no major economic news for the US markets to propel it higher, after new record highs on the Dow we think the Smart Money may want to take some capital off the table. Could
this change? Of Course. Remember anything can happen in a volatile market.
Yesterday we said our bias was neutral as the markets weren't correlated and with Ben Bernanke speaking we felt the markets could be driven in any direction. Unemployment Claims came in lower than expected and the Philly Fed Manufacturing Index came in much higher than expected (19.8 versus 8.5) both of which were very positive for the markets. Ben Bernanke didn't say anything other than what he's already said in the past so at least he's signing from the same hymn book. It appears as though the pundits are already stating that the Fed will taper "later in the year" meaning December and some have stated "early 2014". Bernanke's message essentially is "we will taper when we taper and not a moment too soon"; meaning we will do it when we do it and for a good reason. Bernanke also emphasized that the Fed may keep interest rates low even after the unemployment rate drops below 6.5% which I think the market needed to hear. The problem with all this tapering talk is that everyone is assuming that once the Fed tapers, they will increase the FFR (Federal Funds Rate or overnight rate, thereby increasing interest rates). I surmise that this was the underlying fear all along. Most people don't want higher interest rates and who can blame them? Time will tell how this all works out but for the time being Ben Bernanke just spent two days burying the bears....
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
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 lower and the US
Dollar is declining. This is not 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 106.15 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 $106 a barrel and resistance
at 109. 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 declining. This is not 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.forexcrunch.com/the-taper-caper/
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.
