Market Overview

Mr. Market Says Yes

Good Morning Traders,
 
As of this writing 5:35 AM EST, here’s what we see:
 
US Dollar –Up at 81.100, the Sept US Dollar is up 138 ticks and is trading at 81.100.             
Energies – July Oil is up at 97.09.        
Financials – The September 30 year bond is up 21 ticks and is trading at 140.12.      
Indices – The June S&P 500 emini ES contract is down at 1635.25 and is down 6 ticks.  
Gold – The August gold contract is trading up at 1380.10 and is up 23 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 higher which is not 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 higher.  As of this writing all of Europe is trading up. Japan finally broke the spell that's been looming over the markets this past week,  probably as a follow thru with what happened yesterday on the US markets.  There's a report basically stating that Ben Bernanke will attempt to calm the markets down relative to backing off their QE program and that he'll do it at the upcoming FOMC Meeting next week.  In all likelihood by the time he does that the market will be expecting it and will be calm.  The bad news is if he doesn't say anything about it the market will probably sell off with the idea an concept of "they lied to us".  This is the problem when rumors don't manifest.  This report is sating "unnamed  officials" and that could be anyone.  So the market buys into this and goes higher.  Sounds like the Smart Money Network at work again...
 
  Possible challenges to traders today is the following            
1.  PPI is out at 8:30 AM EST.  This is major.        
2.  Core PPI is out at 8:30 AM EST.  This is major.         
3.  Current Account is out at 8:30 AM EST.  This is not major.  
4.  Capacity Utilization Rate is out at 9:15 AM EST.  This is not major.  
5.  Industrial Production is out at 9:15 AM EST.  This is not major.  
6.  Preliminary UOM Consumer Sentiment is out at 9:55 AM EST.  This is major.  
7.  Preliminary UOM Inflation Expectations is out at 9:55 AM EST.  This is not major.  

Yesterday we said our bias was neutral as we had a number of major reports due and Europe and Asia both traded to the downside.  Additionally the markets weren't correlated but we did have good economic news early in the AM that set the tone for the day.  The net result?  The Dow gained 181 points and the other indices gained as well.  Today the markets aren't correlated and hence our bias is neutral.  Additionally we have major economic reports that could drive the markets in any direction today.   Could this change? Of Course.  Remember anything can happen in a volatile market.

Yesterday the Smart Money finally got into the act and decided to break the trend and drive the markets higher.  Yesterday morning I stated that Thursday was going to be a critical day as it would have marked the beginning of a downtrend in the markets if it fell.  Fortunately we had good economic news in terms of retail sales, unemployment claims, etc. that set the tone for the trading day and even Europe looked better.  Today we do have some major economic reports so we'll have to see how the markets fare.  Additionally we'll need to keep our eye on Japan and what they do as clearly this week the Nikkei has taken its toll on markets worldwide.

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:
https://markettealeaves.sharefile.com/d/sdf8f77f6e2c4347a
 
My discussion with John can be viewed at: http://youtu.be/uVwHpMq1604

 

 


In April I had the opportunity to interview Mr. Dan Cook, Director of Business Development for Nadex.com  Nadex is an exchange that is devoted solely to binary options.  Recently there's been quite a bit of misinformation regarding Binary Options and how they work.  Some have even speculated that opening a Binary Option trading account is the same as identity theft.  My objective is to dispel these myths and to alert the retail trader as to what a binary option is, how to trade them, how to amend an order and how to exit a trade for profit.  Nadex is a Chicago based exchange that abides by the rules of CFTC.  I've created an eBook that will discuss and show how a trader can capitalize on this innovative instrument.  This is an 8 page eBook loaded with charts, diagrams etc.  Each chart/diagram shown has been approved by Nadex and has gone thru their compliance department.  When last I heard compliance departments for exchanges are tough when it comes to misrepresentation.  Feel free to download and to share with those you know.  It's time we saw some innovation.... To View and Download this article, go to:
  https://markettealeaves.sharefile.com/d/s59fb4ac49ca47508

My interview with Dan can be viewed at:
http://youtu.be/ENRRbwH6A_o

 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 July crude dropped to a low of 95.02 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 92.00 a barrel and resistance at 98.  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 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 economic 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.

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Markets

 

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