No Window Dressing this Qtr

Good Morning Traders,
As of this writing 4:30 AM EST, here’s what we see:
US Dollar: Up at 95.935, the US Dollar is up 274 ticks and trading at 95.935.
Energies: August Crude is down at 58.52.
Financials: The Sept 30 year bond is down 10 ticks and trading at 150.17.
Indices: The Sept S&P 500 emini ES contract is up 38 ticks and trading at 2064.00.
Gold: The August gold contract is trading up at 1173.10 Gold is 13 ticks higher than its close.
Initial Conclusion

This is not a correlated market. The dollar is up+ and oil is down- which is 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 Crude is trading down which is correlated. Gold is trading up 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 traded mainly higher with the exception of the Shanghai exchange which traded lower. As of this writing all of Europe is trading higher.

Possible Challenges To Traders Today

– Challenger Job Cuts y/y is out at 7:30 AM EST. This is major.
– ADP Non-Farm Employment Change is out at 8:15 AM EST. This is major.
– Final Manufacturing PMI is out at 9:45 AM EST. This is major.
– ISM Manufacturing PMI is out at 10 AM EST. This is major.
– Construction Spending m/m is out at 10 AM EST. This is major.
– ISM Manufacturing Prices is out at 10 AM EST. This is not major.
– Crude Oil Inventories is out at 10:30 AM EST. This could move the crude market.
– Total Vehicle Sales – All Day. This is major.

Currencies
Yesterday the Swiss Franc made it’s move at around 8 AM EST before any economic news was released. The USD hit a high at around that time and the Swiss Franc hit a low. If you look at the charts below the USD gave a signal at around 8 AM EST, while the Swiss Franc also gave a signal at just about the same time. Look at the charts below and you’ll see a pattern for both assets. The USD hit a high at around 8 AM EST and the Swiss Franc hit a low. These charts represent the latest version of Trend Following Trades and I’ve changed the timeframe to a Renko chart to display better. This represented a long opportunity on the Swiss Franc, as a trader you could have netted 20 plus ticks on this trade. We added a Donchian Channel to the charts to show the signals more clearly. Remember each tick on the Swiss Franc is equal to $12.50 versus $10.00 that we usually see for currencies.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Click on an image to enlarge it.
Swiss Franc – Sept, 2015 – 6/30/15
USD – Sept, 2015 – 6/30/15

Bias

Yesterday we said our bias was neutral as the futures didn’t give any indication as to direction. The Dow closed 24 points higher and the other indices gained ground as well. Today we aren’t dealing with a correlated market however our bias is to the upside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary

Even though the news from Greece continued to dominate the Asian and European markets, it would appear that the US had enough of it and actually gained ground. The Dow gained 24 points and the other indices gained ground as well. However this was the 1st quarter in ten that the S&P did not gain ground and in effect closed where the S&P began 2015. This does not bode well for an economy that is supposed to be in “recovery”. In other news, Greece leads the headlines in terms of news and it would appear as though this drama won’t be over until after July 5th when the Greek voters have their referendum. It is hoped that the US will divorce itself from this saga and return to some sense of normalcy…
Just so you understand, Market Correlation is Market Direction. It attempts to determine the market direction for that day and it does so by using a unique set of tools. In fact TradersLog just published an article on this subject that can be viewed at:
http://www.traderslog.com/market-cor…ket-direction/

Each day in this newsletter we provide viewers a snapshot of the Swiss Franc versus the US dollar as a way and means of capitalizing on the inverse relationship between these two assets. Futures Magazine recognized this correlation as well. So much so that they printed a story on it in their December issue. That story can be viewed at:
View article on Futures Mag
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:
View article on Futures Mag
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:
View article on Futures Mag
Many subscribers have asked what is the best time of day to trade? A recent article published by Futures Magazine may shed some light on the subject:
http://www.futuresmag.com/2015/01/15…orning-trading

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.

As I write this the crude markets are down and the futures are trading higher. This is normal. Crude and the markets are now reverse correlated such that when the markets are rising, crude drops and vice-versa. Yesterday August crude dropped to a low of $58.46 a barrel. It would appear at the present time that crude has support at $58.08 a barrel and resistance at $59.76. This could change. We’ll have to monitor and see. Remember that crude is the only commodity that is reflected immediately at the gas pump. On Monday, December 22nd OPEC reiterated their stance not to cut production. OPEC appears to be adamant about keeping production where it is as they believe that oil will rebound. What they haven’t figured out yet is that the more countries like Canada and the US produce their own crude (by whatever means) the more crude prices will fall. As an update to this OPEC met this past week and have continued their stance in NOT cutting production….
If trading crude today consider doing so after 10:30 AM EST when the inventory numbers are released and the markets gives us better direction.

Future Challenges

As a continuation of the never ending Greek bailout saga, the latest news is the Greek Prime Minister Alexis Tsipras told a Greek television audience on Friday that on July 5th there will be a referendum vote on the latest demands for a continued bailout. Greece has until Tuesday, June 30th to make a payment on the debt owed to the troika (EU, IMF, ECB, etc.) and if they don’t technically they’ll be in default however the powers that be in the EU have agreed to extend the current bailout but Greece must make some “adjustments”. Those adjustments include higher taxes on restaurants and tourism, cutting pension payments to government employees and cuts to government spending.

So Alexi is playing politics as he’s not making any commitment but is more than willing to put the Greek nation at risk. Somehow thru all of this I can’t help but get the feeling that this is all ego driven as Tsipras came to power on the promise of reform from the draconian bailout yet over the past few weeks bank withdrawals have never been higher. If they think that this is bad, they should try devaluing their currency as if they’re not part of the Eurozone then they’ll be on the drachma. Nothing quite like seeing 100,000 of your money get devalued to 10,000…
The drama continues….

Greek banks will now only allow a maximum withdrawal of 60 Euros a day until July 5th (referendum) and won’t allow any transfer of funds outside the Euro Zone. The Athens stock exchange is expected to remain closed for this week.

Crude Oil Is Trading Lower

Crude oil is trading lower and the markets are advancing. This is normal. Crude typically makes 3 major moves (long or short) during the course of any trading day: around 9 AM EST, 11 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. 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 daily newsletter that is dedicated to your trading success. We teach and discuss 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.