The Rooster Call: Low Volume and the Trading Holiday Impact

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

Good Morning Traders!

Today we have the USA Employment Situation report, also called the Non-farm Payrolls report released at 8:30AM ET.  This report will directly affect bonds and US dollar first, followed by equity index futures.  Gold is affected by the US dollar and already this morning gold is lower predicting a robust hiring report.

Equity index futures are walking a tight line trying to balance good news about the US economy against the idea that the better the economic news, the more likely the FED will start raising interest rates. If you wonder why the market might fall on good news…this is a possible reason.

The May Employment Situation report showed 280,000 new jobs created.  Consensus for today’s report (econoday.com) calls for 230,000.  If we miss this number, say below 200,000, I think bonds would rise. Further, the ES would likely rise expressing relief the FED may not raise interest rates in 2015.

I have a hard time believing the low rate of unemployment touted by the financial press and politicians.  Looking deeper into this report we have a category called U-6.  This is the true rate of unemployment the FED is thought to follow placing the USA unemployment rate at 10.4%. Remember the politicians job is to put lipstick on a pig.

Greece continues dominating market uncertainty.  Yesterday’s price rally is challenged overnight with traders attempting follow-through having little success.  Globally, Nikkei 225, DAX, Stoxx 50, and all USA equity index futures show incremental gains…nothing special.  All eyes are on USA open.

Trading prior to a holiday typically finds the after lunch hours a dangerous mine field unless geopolitical news breaks.  The volume is lower and sharks infest the waters preying on the small retail trader.  The professionals are at the airport, starting family vacations, or off to the Hamptons.  Junior clerks are left at the desks told “don’t touch anything.”  Keep this in mind.  A low volume market is subject to sudden price jerks when you least expect it.

ES day traders will keep a watch on the 2075 resistance line.  If price moves above this line, then falls back below the line, chances are this is a bearish development against efforts to move higher. We will see how the market responds to the 8:30AM ET report setting the tone.

VIX futures tumbled overnight…interesting. This type movement suggests (at least for the moment) fear has abated.

Natural gas traders are aware of a wedge on price.  Price is at the apex and a move is imminent. As discussed in last night’s video, we have targets whether the breakout is up or down.

Corn is finding the ability to add to the June 30 price rise difficult. Experienced professionals know the parabolic move will likely give way.  This morning I read a fundamental recap of wet month of June, including flooding in 2010 (worse than anything in 2015).  In all cases, the rains provided for above yield corn out put. Only if July is totally wet and soggy do we have problems.  I am telling you, the price action of small gains yesterday and  overnight are likely people arriving late to the party. If you are not into corn futures, you can certainly trade options on CORN, an ETN trading like a stock.

Let me remind you the USA has the most expensive corn and soybean crop in the world. As the US dollar rises, the crop export price increases. Only a true crop devastation caused by massive flooding or surprise drought can merit a continued parabolic move higher in my opinion.

Soybeans are in the same boat as corn, although the corn crop is more established in the fields.  July has to pass before we can really judge the crop.  We will wish, hope, and pray to the market gods for soybeans to shoot much higher so that we can sell the September contract whilst shorting December at the appropriate time. These trades are best placed when drought has threatened, but we can still monitor the spread. 

Cotton looks like a slaughter house to me.  Avoid unless you are experienced at day trading cotton. Not appropriate for most.

Cocoa consolidates and the hidden hand of seasonal action is coming up soon. We monitor seasonal action each weekend in the Trader Weekly Review along with our normal technical analysis.

Overnight

  • It’s the crying game in China as the Shanghai Composite drops another 3.5% in correction mode.
  • Sweden’s central bank lowered interest rates deeper into -0.35% negative yield.  (Incredible, but true).
  • Greek Finance Minister Varoufakis said he would resign if Greeks vote Yes in the Sunday referendum.
  • Another mega merger as Centene buys Health Net for $6.8 billion.
  • ECB announces they will buy corporate bonds issuing a list of which corporate debt bonds it can buy. This is really dangerous territory for the ECB, yet, the FED has performed similar action. FT.com says the names added are are Italian infrastructure firms.

Economic Events

8:30 Non-farm payrolls – The most widely watched economic report in the world as this directly affects US bonds.
8:30 Initial Jobless Claims
9:45 Bloomberg Consumer Comfort Index
10:00 Factory Orders
10:30 EIA Natural Gas Inventory
4:30 PM Money Supply
4:30 PM Fed Balance Sheet

Markets

  • Equity indexes are treading water in front of the 8:30AM ET report.
  • Metals lower, this can change on a lousy jobs report.
  • Crude incrementally higher.
  • Grains consolidating as discussed above with Wheat falling.
  • Softs are quiet with sugar attempting to continue the rally.
  • Currencies quiet in front of the report.

Think About This

A three-day weekend!  What a great time to relax. Enjoy yourself!

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