As of this writing 6:05 AM EST, here’s what we see:
US Dollar –Down at 80.860, the Sept US Dollar is down 108 ticks and is trading at 80.860.
Energies – August Oil is down at 97.81.
Financials – The September 30 year bond is down 7 ticks and is trading at 139.10.
Indices – The September S&P 500 emini ES contract is up at 1638.75 and is up 20 ticks.
Gold – The August gold contract is trading down at 1377.60 and is down 54 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 lower. 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 lower which is correlated. Gold is trading lower which is not 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 mixed with the Aussie, Nikkei and Sensex closing lower. As of this writing all of Europe is trading up.
Possible challenges to traders today is the following
1. Building Permits are out at 8:30 AM EST. This is major.
2. Core CPI is out at 8:30 AM EST. This is major.
3. CPI is out at 8:30 AM EST. This is major.
4. Housing Starts are out at 8:30 AM EST. This is major.
5. G8 Meeting Day Two.
On Friday we said our bias was to the upside as the Bonds were correlated with the indices and Asia closed higher with Europe trading higher. The net result? The Dow gained 110 points and the other indices gained as well. Today the markets aren't correlated however our bias is to the upside. Why? The USD and Bonds are correlated and are trading lower, this is bullish for the markets and indices. However kindly bear in mind that we have 4 major economic reports due out at 8:30 AM EST and these could drive the markets in any direction. Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday we said our bias was to the upside as the Bonds were correlated with the indices and Asia closed higher with Europe trading higher. We had good economic reports that helped matters. Both the Empire State Manufacturing Index and NAHB Housing numbers came in better than expected and with that the markets took off. It seems that of late the markets are responding to economic reports as they should; meaning good economic numbers give good market results. Whether or not this trend stays in place or changes is yet to be seen but as always we'll monitor and see.
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. 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 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:
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 97.38 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 97.40 a barrel and resistance at 98.69. 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/10110400/leadership-or-lack-thereof
http://www.forexcrunch.com/asian-contagion/
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.
