Happy Memorial Day – Downside bias in a not correlated market [Video]

US Dollar: June USD is Up at 99.805.

Energies: June'20 Crude Down at 32.00.

Financials: The June'20 30 year bond is Up 29  ticks and trading at 180.20.

Indices: The June SP 500 emini ES contract is 48 ticks Lower and trading at 2925.00.

Gold: The June '20 Gold contract is trading Up at 1736.50.   Gold is 145 ticks Higher than its close.

 

Initial Conclusion

This is not a correlated market.  The dollar is Up+ and Crude is Down- which is normal and the 30 year Bond is trading Higher.  The Financials should always correlate with the US dollar such that if the dollar is lower then bonds should follow and vice-versa. The S&P is Lower and Crude is trading Lower which is not correlated. Gold is trading Higher which is not correlated with the US dollar trading Up.   I tend to believe that Gold has an inverse relationship with the US Dollar as when the US Dollar is down, Gold tends to rise in value and vice-versa. Think of it as a seesaw, when one is up the other should be down. I point this out to you to make you aware that when we don't have a correlated market, it means something is wrong. As traders you need to be aware of this and proceed with your eyes wide open.

At this time all of Asia is trading Lower.  Currently Europe is trading mainly Lower with the exception of the Milan exchange which is Higher at this time.

 

Possible Challenges To Traders Today:

• No Major Economic News to speak of.

• Lack of Major Economic news.

 

Treasuries

We've elected to switch gears a bit and show correlation between the 30 year bond (ZB) and The S&P futures contract.  The S&P contract is the Standard and Poor's and the purpose is to show reverse correlation between the two instruments.  Remember it's liken to a seesaw, when up goes up the other should go down and vice versa.

Yesterday the ZB made it's move at around 9 AM EST.  The ZB hit a Low at around that time and the S&P moved Lower.  If you look at the charts below ZB gave a signal at around 9 AM and the S&P moved Lower at around the same time.  Look at the charts below and you'll see a pattern for both assets. ZB hit a Low at around 9 AM EST and the S&P was moving Lower shortly thereafter.  These charts represent the newest version of MultiCharts and I've changed the timeframe to a 15 minute chart to display better.  This represented a Long opportunity on the 30 year bond, as a trader you could have netted about 15 plus ticks per contract on this trade.  Each tick is worth $31.25.  Please note: the front month for the ZB is now June '20.  The S&P contract is now June '20 as well.  I've changed the format to Renko bars such that it may be more apparent and visible.  

 

Charts Courtesy of MultiCharts built on an AMP platform

ZB - June 2020 - 5/21/20

SP - June 2020 - 5/21/20

 

Bias

Yesterday we gave the markets a Downside bias as the USD, Crude and the Bonds were all pointed Higher and this does not bode well for an Upside day hence the Downside bias.  The markets didn't disappoint as the Dow dropped 102 points and the other indices lost ground as well.  Today we aren't dealing with a correlated market and our bias is to the Downside.

Could this change? Of Course.  Remember anything can happen in a volatile market. 

 

Commentary

Well Memorial Day is here and as such it is the unofficial start of summer.  We will see many beaches open to the public and hopefully they're wearing a mask.  Whereas Memorial Day is loaded with celebration, the truth is it's a day to honor the war dead.  So if you know a veteran, give them thanks.  They bought the freedom we so richly enjoy.  Yesterday we witnessed a news tsunami with 10 different economic reports and not all of them were bad.  Existing Home Sales came in nicely and in fact beat the estimate.  Today we will probably see traders heading for the exits early to get a jumpstart on the holiday weekend.  As such we will be back on Tuesday, May 26th.  Enjoy the holiday and stay safe!!!!