Pre-Market Global Review - 7/19/13 - Bernanke Buries the Bears, Again...
Good Morning Traders,
As of this writing 5:20 AM EST, here’s what we see:
US Dollar –Down at 82.895, the Sept US Dollar is down 60 ticks and is trading at 82.895.
Energies – August Oil is down at 107.56.
Financials – The September 30 year bond is up 8 ticks and is trading at 134.29.
Indices – The September S&P 500 emini ES contract is down at 1678.00 and is down 10 ticks.
Gold – The August gold contract is trading up at 1286.70 and is up 25 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 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 lower which is not correlated. Gold is trading higher which is 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 mainly lower with the exception of the Hang Seng and Indian Sensex which closed higher. As of this writing Europe is trading lower.
Possible challenges to traders today is the following
1. No Major Economic News.
2. Lack of Major Economic News.
Yesterday we said our bias was neutral as we felt the markets could be driven in any direction. The net result being that the Dow gained 78 points and the other indices gained as well. Today we are not dealing with a correlated market and our bias is to the downside. Why? The Bonds are trading higher and Europe is trading lower. Additionally there is no major economic news for the US markets to propel it higher, after new record highs on the Dow we think the Smart Money may want to take some capital off the table. Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday we said our bias was neutral as the markets weren't correlated and with Ben Bernanke speaking we felt the markets could be driven in any direction. Unemployment Claims came in lower than expected and the Philly Fed Manufacturing Index came in much higher than expected (19.8 versus 8.5) both of which were very positive for the markets. Ben Bernanke didn't say anything other than what he's already said in the past so at least he's signing from the same hymn book. It appears as though the pundits are already stating that the Fed will taper "later in the year" meaning December and some have stated "early 2014". Bernanke's message essentially is "we will taper when we taper and not a moment too soon"; meaning we will do it when we do it and for a good reason. Bernanke also emphasized that the Fed may keep interest rates low even after the unemployment rate drops below 6.5% which I think the market needed to hear. The problem with all this tapering talk is that everyone is assuming that once the Fed tapers, they will increase the FFR (Federal Funds Rate or overnight rate, thereby increasing interest rates). I surmise that this was the underlying fear all along. Most people don't want higher interest rates and who can blame them? Time will tell how this all works out but for the time being Ben Bernanke just spent two days burying the bears....
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 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 106.15 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 a barrel and resistance at 109. 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 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.
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.