The Rooster Call: Action Non-Directional Since October

Hit the Mark Trading’s Brief Review of Overnight Market Action Setting the Tone for the Trading Day

In last night’s video we discussed the tight side way range of S&P 500 futures nested against a price channel trend line. Basically the action is non-directional since late October. An “event” is required to push the market one way or the other…up or down.

Seizing on the opportunity to make a statement, lots of reports are hitting the wire calling for a market correction. One fund manager who has missed the entire rally from 2009 has issued yet another position paper on why the market is doomed. Another fund manager says if you are waiting for a pull back, you are wrong; just get in the market now. Both men manage billions of dollars. Their attitudes exemplify exactly why the market moves side way…bullish and bearish forces are evenly matched. No one has the answer 100% of the time.

At times like these we really need to focus on trading instruments showing movement. Let the trading dogs fight over equity index futures as we simply move to grains, currencies, crude or other trading vehicles. Don’t get caught up in the hype and the headlines. Simply look at the chart and tell yourself the range is too small. Yes a break out will occur…eventually one way or the other. Meanwhile, is something else cooking up a trade?

We entered new educational trades in Yen and Australian dollar yesterday. We linger in DEC Corn with a runner. We closed out a wonderful trade in Cotton. Bottom line: There is typically something other than ES you can trade. Branch out…explore…test. If you are successful trading ES showing consistency then your same method of trading should work equally well on other instruments. This is called “robustness.”

As we think of what the next event moving the market might occur, we know FED Chairwoman candidate Janet Yellen speaks in a Senate confirmation hearing on Thursday. The market will parse every syllable, every intonation, every utterance she makes attempting to attach meaning…dovish or bearish? The market’s interpretation could cause fluctuations in US bonds, 10-Year Notes and US Dollar Index. The number one question is the length and duration of quantitative easing. Markets are likely to remain subdued into Yellen’s performance at the circus.

After the market moves on Yellen comments, the next “event” is USA Black Friday retail sales numbers. This is a powerful demonstrative force showing the market consumer is still spending and everything is fine. In the event of weaker than expected Black Friday sales, the market may pull back.

China can always throw a wild card announcing broad investment or economic stimulus as a technique to lift markets. Any curtailment of Chinese credit carries downside potential for European and USA equity index futures.

Now against this idea is the fact everyone knows central bank money has kept the dream alive for traders. We have witnessed a market where pull-backs are shallow. Our indicators continue telling us expect a sustained run higher at this point in time.

I am an advocate of cheap “crash” trades using options as an extra hedge against any sudden market drop. We only place crash trades when markets are testing major resistance not moving. The operative word here is “cheap.”

The crash trade simply spreads an additional safety net for any directional UP or non-directional trades we are working. While all our trade risks are completely known, the crash trade simply adds extra buffer off-setting normal losses incurred when a trade moves against position.

Last week, Rooster Call cited copper ready for a break out. This break out occurred in the overnight session. Got to love price patterns. Keep it simple. Copper is all about China. Fundamentals are bearish with global copper production more than enough for demand.

Today’s Reports and FED Activity

8:45 AM ET – FED Pianalto Speaks
2:00 PM ET – Treasury Budget
7:00 PM ET – Bernanke Speaks
Source: Econoday.com

Overnight/Pre-Market

  • Euro zone industrial production came in worse than expected and this caused a reason for selling off European equity index futures.
  • DAX and STOXX 50 fell, whilst FTSE 100 is flat. STOXX 50 is testing a benchmark.
  • ES looked across the Atlantic and decided to drop after seeing Euro Yen cross action. It’s up to USA trader to reverse the overnight tide.
  • 30 Year bonds climbed.
  • Yen climbed incrementally with bonds perhaps for safety.
  • US dollar is in suspended animation doing nothing.
  • Euro is quiet confounding experts calling for a drop.
  • DEC corn consolidates last Friday and Monday’s move higher. The Associated Press has released a negative report on ethanol. Industry sources expect the EPA will rule on the ethanol mandate this week. Any reduction could knock corn lower. A “no change” position is supportive of corn.
  • JAN Soybeans are quiet. Harvest of the 2013 crop is 91% complete as of Sunday.
  • Gold and silver are higher incrementally. Both are watching US dollar for direction.

Day Trader Bench Marks

Intraday ES Floor Pivots – Using 24 hour electronic market hours 1800-1715 ET.

R3: 1781.50
R2: 1775.50
R1: 1770.25

Main floor pivot: 1764.25

S1: 1759
S2: 1753
S3: 1747.75

Intraday Euro Floor Pivot – Using 24 hour electronic market hours 1800-1700 ET.

R3: 1.3568
R2: 1.3513
R1: 1.3470

Main floor pivot: 1.3415

S1: 1.3372
S2: 1.3317
S3: 1.3274

Think About This…

Margins on CME soybeans and wheat contracts shall be reduced after today’s market close. Thank you, CME.

Our new currency trades have a higher degree of risk considering the Yellen confirmation. Why is this? Simple…if confirmed she becomes one of the most powerful women in the world. Her outlook is everything to the global trading community.

Have a great trading day!

To learn more from Martin, visit HitTheMarkTrading.com to join his mailing list and receive blog updates.