Pre-Market Global Review - 9/23/13 - The Market Taketh Away....
Good Morning Traders,
As of this writing 4:45 AM EST, here’s what we see:
US Dollar –Down at 80.510, the Dec US Dollar is down 39 ticks and is trading at 80.510.
Energies – November Oil is down at 104.70.
Financials – The December 30 year bond is up 5 ticks and is trading at 131.27
Indices – The December S&P 500 emini ES contract is up at 1706.75 and is up 13 ticks.
Gold – The October gold contract is trading down at 1328.20 and is down 44 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 up and the US dollar is trading lower which is correlated. Gold is trading lower which is not 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 some of the exchanges closing lower. As of this writing all of Europe is trading mainly higher.
Possible challenges to traders today is the following:
1. Flash Manufacturing PMI is out at 9 AM EST. This is major.
2. FOMC Member Dudley Speaks at 9:30 AM EST. This is major.
3. Lack of real economic news.
On Friday the Swiss Franc made it's move at about 9 AM EST. This was a short opportunity as the USD hit a low at around that time and proceeded to rise, the Swiss Franc fell at the around the same time. The key to capitalizing on these trades is to watch the USD movement. The USD rising only lent confirmation to the move. As a trader you could have netted 20-30 ticks on this trade. And you thought markets weren't correlated? Please note that these charts are December 2013 due to contract rollover.
|Chart Courtesy of Trend Following Trades|
Yesterday we said our bias was neutral as the markets weren't giving us any sense of direction whatsoever. For those of you who are new subscribers a neutral bias means the market could go in any direction. As such the Dow dropped 186 points and the other indices didn't fare any better. Today we aren't dealing with a correlated market and given that the markets aren't giving us any sense of direction our bias is neutral. Could this change? Of Course. Remember anything can happen in a volatile market.
For those subscribers who listened to my Market Bias video on Friday, I specifically stated "today would be a good day to stay out of the markets as there will be plenty of opportunities later." Unfortunately this proved to be more correct than expected as the markets dropped by almost 200 points. The reason why we came to this conclusion is there was no economic to speak of and the only thing we had going was three FOMC members speaking. I didn't listen to what they said but no doubt they pandered on why they came to the conclusion that they did at Wednesday's FOMC meeting. Today we have Dudley speaking at 9:30 AM EST just in time for the markets to open (thank you Dudley Dude Right) Exactly what we need another "rock star" FOMC Member speaking. They can tell us anything they like but the bottom line is they didn't taper because this "recovery" is not strong and they know it. As proof of this, I'm inserting a link to a webinar conducted on August 21st in tandem with the release of the FOMC Meeting Minutes from July. I was honored to be asked to participate and publicly thank Financial Juice for doing this. The webinar is about a half hour in length. http://www.youtube.com/watch?v=VDiazHJ0h9Q&feature=player_embedded
The next item that is worthy of mention is the debt ceiling and budget. On Friday the House decided to approve a budget without Obamacare. Hence de-funding the Act. This now goes to the Senate who probably will send it back to the House funding Obamacare.....
Many of my readers have been asking me to spell out the rules of Market Correlation. Recently Futures Magazine has elected to print a story on the subject matter and I must say I'm proud of the fact that they did as I'm Author of that article. I encourage all viewers to read that piece as it spells out the rules of market correlation and provides charts that show how it works in action. The article is entitled "How to Exploit and Profit from Market Correlation" and can be viewed at:
As a follow up to the first article on Market Correlation, I've produced a second segment on this subject matter and Futures Magazine has elected to publish it. It can be viewed at:
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.
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. On Friday November crude dropped to a low of 104.53 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 $104.03 a barrel and resistance at 106.40. 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 September time frame.
- Military Action in Syria? - September.
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 Interested in Market Correlation? Want to learn more? Signup and receive Market Tea Leaves each day prior to market open. As a subscriber, you’ll also receive our daily Market Bias video that is only available to subscribers.
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.