As of this writing 4:45 AM EST, here’s what we see:
US Dollar –Up at 81.750, the Dec US Dollar is up 39 ticks and is trading at 81.750.
Energies – October Oil is up at 107.85.
Financials – The December 30 year bond is up 9 ticks and is trading at 129.21
Indices – The September S&P 500 emini ES contract is down at 1686.75 and is down 8 ticks.
Gold – The October gold contract is trading down at 1342.40 and is down 211 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 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 mainly mixed with half the exchanges closing higher and the other half lower. As of this writing Europe is trading mainly lower.
Possible challenges to traders today is the following
1. Unemployment Claims are out at 8:30 AM EST. This is major.
2. Import Prices are out at 8:30 AM EST. This is not major.
3. FOMC Member Dudley Speaks at 9 AM EST. This is major.
4. Natural Gas Storage is out at 10:30 AM EST. This will move the Nat Gas market.
5. 30 Year Bond Auction starts at 1 PM EST. This could have an impact on afternoon trading.
6. Federal Budget Balance is out at 2 PM EST. This could have an impact on afternoon trading.
Currencies
Yesterday the
Swiss Franc made it's move at around 9 AM EST and as with Monday's session with no economic news at all. The USD hit a high at around 9 AM EST and the Swiss Franc took off at
around the same time. The USD falling only lent confirmation to the move. As a trader you
could have netted 20-30 ticks
on this trade. And you thought markets weren't correlated?
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| Chart Courtesy of Trend Following Trades |
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| USD 9/11/13 |
Bias
Yesterday we said our bias was to the upside as the USD was trading lower, Asia had not fallen off a cliff and neither did Europe. As such the Dow closed up 136 points and the only "casualty" was the Nasdaq which closed down 4 points. Today we are not dealing with a correlated market however our bias is to the downside. Why? This is a nearly correlated market to the downside, if crude were trading lower I say it's completely correlated downward. As such our bias is to the downside today. Could this change? Of Course. Remember anything can happen in a volatile market.
Apparently the markets liked what they heard Tuesday evening after President Obama's speech as the markets rose with no major economic news to speak of. The Dow has solidly regained its 15,000 mark threshold and the other indices rose as well making 3 up days in a row. The only real casualty yesterday was the Nasdaq which fell fractionally by 4 points. I suspect the reason being that although Apple has released two new version of the iPhone both of which are less expensive than previous versions; the Smart Money is already discounting their sales. Time will tell if this is true or not. Today we do have some major economic news with Unemployment Claims which are always major.
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
http://www.traderplanet.com/commentaries/view/164874-trader-tips-the-case-for-fundamental-analysis/
TraderPlanet published an article I produced called The Case for Fundamental Analysis. Feel free to visit and provide any comments you may have. In case you weren't aware Market Correlation is mainly fundamental analysis specific to Futures and the Futures markets.
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 106.95 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 $106.67 a barrel and resistance at 108.40. 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.
- Military Action in Syria? - September.
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.barchart.com/headlines/story/12241621/syria-turmoil-stirs-markets
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 Interested in Market Correlation? Want to learn more? Signup and receive Market Tea Leaves each day prior to market open. As a subscriber, you’ll also receive our daily Market Bias video that is only available to subscribers.
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