Neutral Bias = Upside Day

Good Morning Traders,

As of this writing 4 AM EST, here’s what we see:

US Dollar: Jun. USD is Down at 93.145.
Energies: Jun '18 Crude is Up at 71.73.
Financials: The June 30 year bond is Down 14 ticks and trading at 140.16.
Indices: The June S&P 500 emini ES contract is 17 ticks Lower and trading at 2718.75.
Gold: The June gold contract is trading Down at 1289.50. Gold is 20 ticks Lower than its close.

Initial Conclusion

This is not a correlated market. The dollar is Down- and Crude is Up+ which is normal and the 30 year Bond is trading Lower. 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 Higher which is correlated. Gold is trading Down- which is not correlated with the US dollar trading Down-. 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 hour Asia is trading mainly Lower with the exception of the Singapore and Nikkei exchanges which is presently Higher. At this time all of Europe is trading Higher.

Possible Challenges To Traders Today

• Philly Fed Manufacturing Index is out at 8:30 AM EST. This is major.

• Unemployment Claims is out at 8:30 AM EST. This is major.

• CB Leading Index m/m is out at 10 AM. This is major.

• Natural Gas Storage is out at 10:30 AM EST. This is major.

 Treasuries

We've elected to switch gears a bit and show correlation between the 30 year bond (ZB) and The YM futures contract. The YM contract is the DJIA 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 8 AM EST. The ZB hit a High at around that time and the YM hit a Low. If you look at the charts below ZB gave a signal at around 8 AM EST and the YM was moving Higher at the same time. Look at the charts below and you'll see a pattern for both assets. ZB hit a High at around 8 AM and the YM was trending Higher at the same time. These charts represent the newest version of MultiCharts and I've changed the timeframe to a 30 minute chart to display better. This represented a shorting opportunity on the 30 year bond, as a trader you could have netted about 20 plus ticks per contract on this trade. Each tick is worth $31.25.

Charts Courtesy of MultiCharts built on an AMP platform.

Bias

Yesterday we gave the markets a Neutral bias as the markets didn't seem to have any sense of direction yesterday morning. The Dow gained 63 points and the other indices gained ground as well. We aren't dealing with a correlated market and will maintain a Neutral bias.

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

Commentary

Yesterday's economic news wasn't exactly stellar yet the markets gained ground. Building Permits came in as expected however Housing Starts was down and yet the markets gained. Why? We've said for awhile that sometimes not too stellar economic news can cause the markets to rise as the worse the news the less likelihood of a rate increase by the Federal Reserve. We think that currently that's playing out quite nicely now. Today we have Philly Fed Manufacturing Index and Unemployment Claims; both of which are major and proven market movers. Can they change market direction? Only time will tell.