Market Overview

Correlated Markets Increase Indices

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Good Morning Traders,
 
As of this writing 4:45 AM EST, here’s what we see:
 
US Dollar –Up at 83.340, the Sept US Dollar is up 83 ticks and is trading at 83.340.             
Energies – August Oil is up at 98.15.        
Financials – The September 30 year bond is up 15 ticks and is trading at 136.07.      
Indices – The September S&P 500 emini ES contract is up at 1610.50 and is up 15 ticks.  
Gold – The August gold contract is trading up at 1263.50 and is up 78 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 up  and the US dollar is trading higher which is not 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. 
 
Asia closed mainly higher with the exception being the Hang Seng and Sensex exchanges.  As of this writing all of Europe is trading lower. 

  Possible challenges to traders today is the following            
1.  Factory Orders are out at 10 AM EST.  This is major.        
2.  IBD Economic Optimism is out at 10 AM EST.  This is major.        
 
3.  Total Vehicle Sales - all day.  
4.  FOMC Member Dudley speaks at 12:30 PM EST.  This is major.
     
Yesterday we said our bias was to the upside as the markets were correlated.  The Net Result?  The Dow gained 65 points and the other indices gained as well. Today we are not dealing with a correlated market and currently this reminds me of Friday's situation where all instruments are moving higher. As such our bias is neutral as the markets can go in any direction today.   Could this change? Of Course.  Remember anything can happen in a volatile market.

Yesterday we said our bias was to upside as yesterday morning the markets were correlated as such.  That's the thing about Market Correlation, it will give you a good sense of direction going forward for that day.  Of course having good economic news didn't hurt either.  ISM Manufacturing, Construction Spending all came in with good results and clearly that can't hurt. My concern yesterday was a report that came out from the German publication: Der Speigel that claimed the NSA had bugged EU Headquarters in both Washington and Brussels; in fact I mentioned this in our Market Bias video because yesterday morning the DAX was dropping like a rock and looked like the Paris exchange would follow suit.  The situation stabilized however and Europe did close higher.  It makes you wonder, if this is true what are the folks in DC thinking?  The Europeans are not our enemies, if anything they are our allies.  I don't understand an administration allowing this, if true.  But then again, I'm not too crazy about having my phone tapped either....

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 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

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 August crude dropped to a low of 96.29 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 95 a barrel and resistance at 99.  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 reports 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.

 

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: Futures Forex Markets Trading Ideas

 

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