Good Morning Traders,
As of this writing 5:55 AM EST, here’s what we see:
US Dollar –Up at 80.780, the Sept US Dollar is up 31 ticks and is trading at 80.780.
Energies – August Oil is up at 99.08.
Financials – The September 30 year bond is down 1 tick and is trading at 139.17.
Indices – The September S&P 500 emini ES contract is up at 1648.50 and is up 13 ticks.
Gold – The August gold contract is trading down at 1366.80 and is down 1 tick 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 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 higher which is not 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 mixed with the Aussie, Nikkei and Sensex closing higher. As of this writing all of Europe is trading up.
Possible challenges to traders today is the following
1. Crude Oil Inventories are out at 10:30 AM EST. This will move the oil markets.
2. FOMC Economic Projections are out at 2 PM EST. This is major.
3. FOMC Statement is out at 2 PM EST. This is major.
4. Federal Funds Rate is out at 2 PM EST. This is major.
5. FOMC Press Conference to start at 2:30 PM EST.
Yesterday we said our bias was to the upside as both the USD and Bonds were trading lower and this historically is positive for the markets and indices. The net result? The Dow gained 138 points and the other indices gained as well. Today we are not dealing with a correlated market and ordinarily I might say our bias is to the upside because the Bonds are trading lower and the indices are higher. However this is not an ordinary day, it's FOMC Day and our bias is neutral meaning the markets can be driven in any direction today. Could this change? Of Course. Remember anything can happen in a volatile market.
Today is FOMC Day and as most of my followers know by now, I don't trade on FOMC Day as the markets historically do not trade with any sense of normalcy. The interesting aspect about this particular meeting is Obama praising the efforts of Chairman Bernanke. Typically when a President does that it does not bode well for the person he's praising. It sounds to me as though President Obama has determined that Ben Bernanke won't be back for another term. If that is the case, it would be a shame as Ben Bernanke has done much to keep the financial system intact after the fallout of 2008. I know there are many who may dispute this but consider this as food for thought. What would have happened if the current Fed Chairman had raised rates prematurely? Access to capital would have been cutoff for many people and businesses and all the success we currently applaud (auto sales, lower mortgage rates, etc.) would be nonexistent. Think about that if you're considering throwing a stone at the Fed Chairman. Do we think that the Fed is going to raise the Federal Funds Rate? No, what will make today's meeting interesting is his comments on Quantitative Easing. Will the Fed provide language that QE will be tapered? That's the question for today. Of course we don't know that but will 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:
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 neutral. 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 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 97.65 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 97.98 a barrel and resistance at 99.14. 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 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 10:30 AM when the inventory numbers are released and 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.
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