S&P 500 Futures / DAX Whipsaw

Hours before the S&P 500 futures opened, the global index markets were weak; leading the charge to the downside was the German DAX, down over 3.2% at 12:00 CT. More and more it seems like the European bourses are now pushing the S&P around. For most of the S&P’s history it has been the world’s leading index, but over the last few months as the DAX has fallen (down over 9% from its highs) it seems like the S&P is following, not leading. That said, once the move has been made, it’s nearly always the S&P that shakes it off and heads back up.

One thing every trader must have is a simple word: trust. Do you trust the market timing service you pay for, even as you buy and sell off its recommendations every day? Do you trust the commentators and guests on CNBC or Bloomberg or the Wall Street Journal, since after all you let their ideas into your mind every morning? Or do you have a trustworthy friend who is a successful trader? To be honest, I have no idea who to believe, and that is why I try my very hardest not to trust any of the above. And I am actually lucky enough to have some of the world’s best traders as my friends. I do think the Wall Street Journal is the best “vertical” out there, but I do not base my trade decisions on it. I read it purely for global economic news and statistics.

So who can you trust when it comes to making trading decisions? Honestly, it has to come from you. You can’t make a trade and then blame the loss on a bad setting or misfired indicator, because at the end of the day it was you who pulled the trigger. You made the final decision to buy or sell, so it’s you who bears the responsibility of the trade, win or lose. As I have tried to explain many times there has to be a connection between what you’re seeing on your charts and what your gut feeling for the trade is. If you’re not sure, then you’re probably not supposed to make the trade.

As the markets evolve, old strategies that used to work don’t and the new things that work only work until the algorithms include the pattern in their coding, which doesn’t take too long. So who should you trust? There isn’t just one answer. The second day of the FOMC provided a lot of head fakes and uncertainty. But after all the big recent ups and downs and false starts the ESM15 sold off hard, rallied hard and is pretty much at the same price it’s been for the last 3 weeks. The only thing that probably fluctuated more was some traders’ blood pressure.

In the end, the only truth in the market is the actual price that got printed, moment to moment. Not what some expert said or indicator suggested, but what a buyer and seller actually did with their own money. As long as the price data is accurate, you can trust that.

But the thing traders really must learn to trust if they want to succeed is themselves. Do you trust your own ability to make a decision—including the decision to stand aside and not take the trade—and then accept responsibility for it? Do you trust the process you use to make that decision? Is it a series of steps you have thought through and you follow without fail? Or is it random: you hear someone on CNBC sounding bullish and just the confidence in his voice or his job title or net worth convince you to get long without checking your charts or getting a feel for where the market is going to give you a good dip to buy into? Most traders who fail not only trade with that kind of flailing around instead of a trusted method, they also fail to be responsible, to look back at the winners and see what made them winners so they can do it again, and to look clear and hard at the losers without blaming their signal or software or the news and recognize where their decision-making needs improvement. Sooner or later, every trader finds out, often the hard way: when you don’t know what or whom to trust, at least you have to know that you can trust yourself.

The Asian markets closed mostly lower and in Europe 7 out of 12 markets quoted are trading modestly lower this morning. On today’s economic calendar are the jobless claims, personal income and outlays, Employment Cost Index, Federal Reserve Gov. Daniel Tarullo speaks to the Independent Community Bankers of America in Washington, Chicago PMI, EIA natural gas report, Kansas City Fed Manufacturing Index, farm prices, Fed balance sheet, money supply and earnings before the open from APD ARG ALKS ALLE AMT ABC AWI BZH BDC BWA BC BG CAH CSH CDK CELGCLDX GTLS CI CME COP CY DLPH ENDP XOM FIS THRM HAR ICAD IMAX INCY LNG MGLN MPC MYL NTCT NBIX ODFL PCRX PCYC PSX RDWR ROK RDSA RGLS RYL SBH SHPG SNE TASR TEVA TWC VNTV WST ZMH and after the close from AEM AIG ATHN BMRN BCOV CATM COLM CTCT CROX DGI EMN LOCO ELLI EVH CEPAM EXPE FRGI FEYE FLT FBHS GILD HABT HLS XXIA JMEI LNKD NTRI PE POL RKUS SGEN SWKS GEVA TSRO TRUE UVE V WBMD WYNN.

Our View: Is this a water in the bathtub type trade or what? Clearly the S&P futures are “running in circles.” but what scares me is the futures’ inability to break out one way or the other. It can’t stay like this forever, and while the overall price action seems to be pointing higher, that doesn’t mean the ESM can’t go flying down either. I am sticking with the PitBull’s call that the ESM is in a 2080 -2120 trading range. I am also sticking with the idea that the S&P is not going to explode higher or sell off sharply but still think the wildcard is to the upside. I am going to leave it like that, you can take it from there.

As always, please use protective buy and sell stops when trading futures and options.

• In Asia 9 out of 11 markets closed lower: Shanghai Comp. -0.78%, Hang Seng -0.94%, Nikkei -2.69%
• In Europe 7 of 12 markets are trading lower: DAX +0.22%, FTSE 000%, MICEX +0.77%, GD.AT -0.08% (at 6:00 am CT)
• Fair value: S&P -6.31, Nasdaq -7.84, DOW -79.29
• Total volume: Going up; 1.73 mil ESM and 7k SPM traded
• Economic schedule: Jobless claims, personal income and outlays, Employment Cost Index, Federal Reserve Gov. Daniel Tarullo speaks to the Independent Community Bankers of America in Washington, Chicago PMI, EIA natural gas report, Kansas City Fed Manufacturing Index, farm prices, Fed balance sheet, money supply

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