Emini Trading Update – Tuesday 8 Mar 2011 (6:27)
Getting this update out about an hour after the Open. Right now it looks like 1,306 will hold – we’ll see what happens by the end of the day.
Questions of the day …
From Jeff M.
“I was wondering if you use any alerts when trading … and walk away occasionally or do you just stay completely focused on the charts while you are trading?”
I stay completely focussed for the first hour or hour and a half. Watching every bar, reading the direction from the “Better” indicators and trying to get my 4 points done.
During the first couple of hours of the day we have the most liquidity, volatility and potential to get on board trend moves. So “make hay while the sun shines”.
After that I’ll have my charts open in half my screen but start answering emails, catching up on news feeds and watching videos. From time to time, nice trades set up in the latter part of the day or I’m waiting for a particular setup. But mostly if I’ve made my 4 points I just like seeing what’s going on.
“Question about inter-market logic and correlation: If the dollar goes down, should the Emini also tend to go down or sideways? The SP index is influenced by the largest capitalization stocks and many of those are non-US based companies. The link between the dollar and Russell 3000 index seems more logical.”
Correlations change over time – so what is working now will not work forever. But understanding what the common accepted beliefs are today can help you anticipate what the Emini could do, based on what other markets are doing.
The current theme goes something like this:
- The Fed is printing money (QE) more aggressively than other central banks
- Resulting in a gradual and persistent decline in the US Dollar
- S&P500 is over-weight multi-nationals who get ~50% of earnings offshore
- A declining US Dollar increases the value of these offshore earnings
- S&P500 is over-weight exporters (e.g. Boeing) who benefit from weak US Dollar
- Fed interest rate policy (and QE) is also keeping interest rates low
- Companies in the S&P500 are also more highly leveraged
- Low interest rates keep their borrowing costs low and hence earnings higher
- Higher earnings from declining US Dollar and low interest rates should mean a higher stock market
A competing theme argues that the weaker US Dollar is pushing up commodity prices that affect input costs (crude, copper, coal, grains, cotton, etc.) which will reduce earnings and mean a lower stock market.
It’s all a question of degree and the relative size of the flows to push markets around. We’ll only understand what is happening in the fullness of time, when we can look back and say “Ah Hah” – it was so obvious.
Quote of the day …
Also from Nick
“One of the best websites about real trading on the internet. Sense of humor, pleasure to read, watch and follow the ups and downs. Thank you.”
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