The Rooster Call: FED Minutes and Yesterday’s Trading

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

Good Morning Traders! FED Minutes were a non-event showing mixed discussion of whether to raise interest rates sooner rather than later. Only one vote for an immediate FED rate increase at the last meeting. Markets moved higher out of relief the Minutes were finally released more than anything else. Bench mark 2169 held and Rooster Call told you to be aware. I discuss how we traded this below.

Bullard spoke yesterday expressing his dovish side suggesting only one FED rate increase is appropriate for the next two years.

The New York FED’s Dudley speaks today at 10AM ET. He is the most powerful of the FED Presidents typically aligned closely with Yellen and Fischer.

Williams speaks at 4PM ET. His paper moved the markets lower on Tuesday.

Basically, yesterday’s overnight action saw US equity index futures fall in sympathy with DAX overnight action and uncertainty over FED Minutes. After the Minutes release, ES powered higher leaving a reversal price bar, but no new high.

The action in ES moved all equity index futures AND caused DAX and STOXX 50 to move off their low of day. It’s a connected world folks. Today we look for potential follow-through for the ES reversal price bar. In the very big picture…nothing special as the market has moved higher on lower volume and has nothing to sustain itself.

An interesting side-note: CNBC reports "Corporate Insider Selling Surges As Market Hits Record."

Corporate insiders are taking profits as U.S. equities rise to record levels, according to the new Vickers Weekly Insider Report from Argus Research.

Based on data that examines the ratio between buying and selling among corporate executives, the rate of net insider selling reached the highest level since June 2015. That surge preceded a previous market high when the Dow was pushing over 18,000 for the first time ever, according to Richard Cuneo, senior vice president of operations at Argus Research.

This morning we have ECB Minutes hinting at extending ultra-loose monetary policy.

US dollar continues lower, which is a support for crude and physical commodities in general. The falling US dollar is life-support for Copper. Interestingly, Gold and Silver are not as excited about the lower US dollar as we have seen in the past. This suggests complacency among the bulls or a tired trade. Seasonal tendency suggests gold falls after September 2.

Grains are not responding to lower US dollar at this point in time, but most all other commodities are higher. This is herd behavior in action.

The impact of the stronger Japanese Yen was seen in the Japanese trade data overnight as exports fell -14%. As well, imports fell -25%. These are big numbers. No one cares! Japan is the third largest world economy. Nikkei 225 dipped lower.

DAX and STOXX 50 have resumed downside price action. Up to USA traders to turn this attitude around. Otherwise, yes, of course USA equity index futures are over-sold and due for normal pull-back. Monitor VIX daily.

Walmart earnings beat analysts earnings forecast. Walmart raise full year EPS guidance. This is a market positive.

Economic Events

8:30 Initial Jobless Claims
8:30 Philly Fed Business Outlook
9:45 Bloomberg Consumer Comfort Index
10:00 Fed’s Dudley Speech
10:00 Leading Indicators
10:30 EIA Natural Gas Inventory
4:00 PM Fed’s Williams: Economic Outlook
4:30 PM Money Supply
4:30 PM Fed Balance Sheet

Markets

Today is the reaction day for yesterday’s FED Minutes release. Overnight it appears Asian and European stock markets are once again in caution mode.

Crude higher incrementally as Brent tests $50.00.

US dollar hits 8-week low as FED is divided on rate increase.

Today’s Dudley speech is a potential market mover.

Bonds moving incremental nothing special.

Gold and Silver trade very tight range…dangerous.

Soybean Oil parabolic move has first day of red and this action sends November Soybeans lower.

Softs incremental and dangerous.

US dollar lower, yet off overnight lows after ECB Minutes.

Hey, markets seem on edge unable to move higher (except for crude) and looking like a sudden embrace of risk aversion could hit. Trade carefully.

Think About This!

Markets were tough yesterday. Crude moved spasmodically. I broke a rule entering a trade one minute after the crude report and was quickly dealt with punitively. Great set-up…but the crude report causes dangerous rip tides of trading activity and it is typically better to wait at minimum five minutes after the report.

ES dropped below a bench mark 2169 we expected would hold. We placed a trade using $162.50 protective stop and got stopped out. However, we placed a second trade again based on 2169 holding, made sure we had close protective stop in place, then I signed off the live trading room…went to the gym, came back, and was delighted at the results. The lesson here is know your bench marks…know what kind of market we are involved with (tight side-way), draw your trend lines and expect price to respect your trend lines.

I warned against trading yesterday’s pre-FED Minutes release, yet I did not take my own advice and the results were not good. Great set-ups that simply provided little follow-through.

The momentum trader MUST have price movement or the trading becomes a frustration as the trader sees trades immediately go against him/her OR the trade works generating small profits…then reverses.

I am reminded of my friend "three-tick Charlie," who is the happiest trader I have ever met. Working with size, he takes his three ticks only and smiles. For me that’s too small of a profit target…but I cannot argue with Charlie’s extremely high win rate. Different exits work for different people and one size does not fit all.

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