Market Overview

Pre-Market Global Review - 10/1/13 - No Window Dressing this Quarter

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Good Morning Traders,
 
As of this writing 4:30 AM EST, here’s what we see:
 
US Dollar –Down at 80.070, the Dec US Dollar is down 258 ticks and is trading at 80.070.             
Energies – November Oil is down at 102.11.       
Financials – The December 30 year bond is down 18 ticks and is trading at 132.26.      
Indices – The December S&P 500 emini ES contract is up at 1683.00 and is up 26 ticks.  
Gold – The October gold contract is trading up at 1333.30 and is up 68 ticks from its close.
 
Initial Conclusion: This is nearly a correlated market.  The dollar is down- and oil is down-  which is not normal but 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 lower which is 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 higher with the exception being the Hang Seng exchange. As of this writing all of Europe is trading mainly higher. 
 
  Possible challenges to traders today is the following:
                                                
1.  Final Manufacturing PMI is out at 9 AM EST.   This is major.       
2. 
ISM Manufacturing PMI is out at 10 AM EST.  This is major.

3.  Construction Spending m/m is out at 10 AM EST.  This is major.
4.  ISM Manufacturing Prices is out at 10 AM EST.  This is major.
5.  Total Vehicle Sales - All Day.  This is major.             

 
     Currencies  
Yesterday the Swiss Franc made it's move at around 8:45AM EST.  This was a short opportunity as the USD hit a low at around that time and proceeded to rise,  the Swiss Franc dropped 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 ticks on this trade.  And you thought markets weren't correlated? 

 

 
Chart Courtesy of Trend Following Trades
USD - 9/30/13

Bias


Yesterday we said our bias was to the downside as the political news far out weighed any economic agenda.  The Dow dropped 128 points and the other indices dropped as well.  Today we are dealing with a mainly correlated market.  The exception being crude.  If crude were trading higher I would say we had a completely correlated market, hence our bias is to the upside today.   Could this change? Of Course.  Remember anything can happen in a volatile market.
 
Given that yesterday was  the last day of the calendar quarter, it begs us to ask the question will window dressing return?  For those who aren't aware, window dressing was the phenomena whereby the mutual fund managers and institutionals aka "Smart Money" would artificially pump up the value of equities  just to make it appear good on a quarterly statement.  This used to happen quite often in the 1990's so the question is in light of the recent run up this year of the equities market, will we see a return of this phenomena?  I would venture to say probably not as the rules are a bit different today.  In the 1990's we didn't have the impact of geopolitical events liken to today.  Look at what happened last month with Syria which made markets worldwide very volatile.  Additionally in the 90's the only thing we concerned ourselves with was the markets themselves.  Up meant up, today it means possibly up and for how long?  In the 90's we talked about global markets but didn't really practice it and today we do.  We also didn't a know nothing, do nothing Congress as we have today.  Yesterday afternoon the Senate rejected the House GOP version of the budget and removed any language regarding ObamaCare and sent it back to the House.  So what we have is stalemate and and now we  have a partial government shutdown.  So now the question becomes how long will this last?  Only time will tell.....
 

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: 


http://www.futuresmag.com/2013/08/01/how-to-exploit-and-profit-from-market-correlation

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:

http://www.futuresmag.com/2013/08/16/how-to-exploit-and-profit-from-market-correlation?ref=hp

 
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 upside.  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: http://www.traderslog.com/john-karnas/
 
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. On Friday November crude dropped to a low of 101.06 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 $100.35 a barrel and resistance at 103.59.  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 - ongoing.      
 

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.

Posted-In: Futures Forex Pre-Market Outlook Markets

 

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