As of this writing 5:25 AM EST, here’s what we see:
US Dollar –Up at 81.530, the Sept US Dollar is up 89 ticks and is trading at 81.530.
Energies – October Oil is up at 106.31.
Financials – The September 30 year bond is up 13 ticks and is trading at 132.12.
Indices – The September S&P 500 emini ES contract is down at 1646.00 and is down 33 ticks.
Gold – The October gold contract is trading up at 1410.80 and is up 178 ticks from its close.
Initial Conclusion: This is not a correlated market. The dollar is up+ and oil is up+ 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 higher which is 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.
Asia closed mainly higher with the exception of the Shanghai exchange which closed higher. As of this writing all of Europe is trading lower.
Possible challenges to traders today is the following
1. S&P/CS Composite - 20 year HPI is out at 9 AM EST. This is major.
2. CB Consumer Confidence is out at 10 AM EST. This is major.
3. Richmond Manufacturing Index is out at 10 AM EST. This is major.
Currencies Yesterday the Swiss Franc made it's move at 8:30 AM after the Durable Goods numbers were released. Interestingly enough if you follow what we teach in terms of Market Correlation and compare the Swiss Franc to the USD, you would notice that at 8:30 AM the USD had reached a high and began to sell off. The Swiss Franc on the hand took off at around that same time proving correlation. As a trader you could have netted 20 ticks on this trade. Bear in mind that each tick on the Swiss Franc is worth $12.50 USD. Please note that in the near future I'll be speaking with John Karnas, CEO of Trend Following Trades to discuss the enhanced version of this charting package.
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| Chart Courtesy of Trend Following Trades |
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| USD 8/26/13 |
Yesterday we said our bias was to the downside as both the USD and Bonds were trading higher. As such the Dow dropped 65 points and the other indices didn't fare too well either. Today we are note dealing with a correlated market and our bias is to the downside. Could this change? Of Course. Remember anything can happen in a volatile market.
After a deplorable Durable Goods and Core Durable Goods report the market basically flip flopped between positive and negative territory all session long to finally close in negative territory. We've been saying for months now that the US economy is not that strong and that we need to get our minds off tapering as there is much serious issues to contend with. This entire summer has reeked of nothing but taper talk or the lack thereof, yet we still have budget issues to deal with and I suspect an upcoming budget battle that will pale by comparison. As our good friend Markus Heitkoetter has said "they will do what they do when they do it" and I basically agree with this. To view more commentary on this subject, check out the paragraph below....
In case you missed it, last Wednesday Financial Juice ran its commentary on the FOMC Meeting minutes. Financial Juice had as it's commentators 2 legendary traders: Markus Heitkoetter of Rockwell Trading and Gavin Holmes of Tradeguider. I was also asked to be a commentator and I couldn't be more honored. So if you're looking for an unbiased commentary on the FOMC Meeting minutes, then feel free to visit: http://www.youtube.com/watch?v=VDiazHJ0h9Q
Awhile ago we ran a story on Binary Options and the benefits thereof. TraderPlanet has now published Part 2 of that story. This piece has both the interview I did with Dan and a link to his webinar of Binary Options. Now you may or may not be familiar with TraderPlanet, but if you've been trading for any length of time, you are familiar with SFO (Stock, Futures & Options) magazine. TraderPlanet bought SFO about a year ago. The article can be viewed at:
http://www.traderplanet.com/articles/view/164634-dispelling-the-myths-on-binary-options/
Many of my readers have been asking me to spell out the rules of Market Correlation. Recently Futures Magazine has elected to print a story on the subject matter and I must say I'm proud of the fact that they did as I'm Author of that article. I encourage all viewers to read that piece as it spells out the rules of market correlation and provides charts that show how it works in action. The article is entitled "How to Exploit and Profit from Market Correlation" and can be viewed at:
http://www.futuresmag.com/2013/08/01/how-to-exploit-and-profit-from-market-correlation
As a follow up to the first article on Market Correlation, I've produced a second segment on this subject matter and Futures Magazine has elected to publish it. It can be viewed at:
http://www.futuresmag.com/2013/08/16/how-to-exploit-and-profit-from-market-correlation?ref=hp
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/s0e8e37fe5944fc79
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 advancing. 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 October crude dropped to a low of 105.56 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 $105.89 a barrel and resistance at 107.48. 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 September time frame.
- Asian Contagion - happening now
Crude oil is trading higher and the US Dollar is advancing. 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/the-sitzkrieg-jobs-report/
http://www.forexcrunch.com/leadership-or-lack-thereof-part-ii/
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.
Nick
Mastrandrea is the author of Market Tea Leaves. Market Tea Leaves is a free,
daily newsletter that discuses and teaches market correlation. Market Tea
Leaves is published daily, pre-market in the United States and can be viewed at
www.markettealeaves.com
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