Pre-Market Global Review - 7/25/13 - Downtown Dow Derailed
Good Morning Traders,
As of this writing 5:10 AM EST, here’s what we see:
US Dollar –Up at 82.410, the Sept US Dollar is up 10 ticks and is trading at 82.410.
Energies – September Oil is down at 104.88.
Financials – The September 30 year bond is up 2 ticks and is trading at 134.05.
Indices – The September S&P 500 emini ES contract is down at 1675.75 and is down 32 ticks.
Gold – The August gold contract is trading down at 1318.40 and is down 11 ticks from its close.
Initial Conclusion: Finally a correlated market, unfortunately it is correlated to the downside. 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 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.
All of Asia closed lower with some exchanges trading lower to the tune of triple digits . As of this writing Europe is trading lower.
Possible challenges to traders today is the following
1. Unemployment Claims are out at 8:30 AM EST. This is not major.
2. Core Durable Goods are out at 8:30 AM. This is major.
3. Durable Goods are out at 8:30 AM EST. This is major.
4. Natural Gas Supply is out at 10:30 AM EST. This will move the Nat Gas market.
Yesterday we said our bias was to the upside as the Bonds were trading lower and Gold was trading higher. Apparently the Smart Money thought otherwise and decided to take capital off the table after 2 days of gains. The Dow dropped by 26 points and the S&P fell as well. Today we are dealing with a correlated market, however it is correlated to the downside therefore our bias is to the downside. Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday our bias was to the upside and despite the fact that we had good economic reports the markets dropped. New Home Sales came in better than expected as well as Manufacturing PMI yet the markets dropped. I can only suspect that the Smart Money decided it was time to take capital off the table. In other news President Obama decided to have a talk regarding a "Better Bargain". Don't worry folks he's been saying the same thing for the last 5 years and guess what? Nothing's changed. In fact they're getting progressively worse. Let me give you a case-in-point; my wife was let go on her job after 15 years of meritorious service and has attempted to apply for work in other companies in the same industry. They told her they would no longer accept in-person applications and was told to apply on the Internet. No problem there, right? Except that for her type of work they do not post job openings on the Internet. Employers are making it more difficult for job seekers to apply for work and they say that people aren't looking for work or have giving up looking. If you buy that I have a good bridge to sell you. This President talks the talk, but does not walk the walk. His policies will virtually guarantee that the top 1 percent will grow even further. He claims that he wants to put more people in the middle class as opposed to protecting the already shrinking middle class. His biggest mistake was to concern himself with medical benefits as opposed to growing the economy. Now they're popping the champagne cork in DC thinking "unemployment problem?" "there's no unemployment problem, look at all the jobs we created in the last 20 months". But what they fail to say is that the jobs created are menial at best, don't carry a living wage and don't have benefits associated with them. So much for A Better Bargain....
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:
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 September crude dropped to a low of 104.79 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 $104 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.
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 Feel free to visit and subscribe.