OPEC Meeting Doesn’t Phase Markets
|Good Morning Traders,
As of this writing 4 AM EST, here's what we see:
US Dollar: Jun. USD is Down at 97.030.
Energies: Jun Crude is Up at 49.06.
Financials: The June 30 year bond is Down 2 ticks and trading at 153.26.
Indices: The June S&P 500 emini ES contract is 4 ticks Higher and trading at 2414.25.
Gold: The June gold contract is trading Up at 1261.90. Gold is 55 ticks Higher 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 indices are Up+ and Crude is trading Up+ which is not correlated. Gold is trading Up+ which is 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 all of Asia is trading Lower with the exception of the Shanghai and Indian Sensex exchanges which are higher at this hour. As of this writing all of Europe is trading lower.
Possible Challenges To Traders Today
– Durable Goods Orders m/m is out at 8:30 AM EST. This is major.
– Core Durable Goods Orders is out at 8:30 AM EST. This is major.
– Prelim GDP q/q is out at 8:30 AM. This is major.
– Prelim GDP Price Index q/q is out at 8:30 AM EST. This is major.
– Revised UoM Consumer Sentiment is out at 10 AM EST. This is not major.
– Revised UoM Inflation Expectations is out at 10 AM. This is not 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 11 AM EST with no real economic news in sight. The ZB hit a low at around that time and the YM hit a high. If you look at the charts below ZB gave a signal at around 11 AM 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 low at around 11 AM and the YM hit a high. These charts represent the newest version of Trend Following Trades and I've changed the timeframe to a 30 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. We added a Donchian Channel to the charts to show the signals more clearly.
Charts Courtesy of Trend Following Trades built on a NinjaTrader platform
Bias
Yesterday we gave the markets a neutral bias as the indices had no sense of direction yesterday morning. The Dow rose 71 points and the other indices gained ground as well. This is not a correlated market however our bias is to the upside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
So yesterday OPEC had their meeting to discuss extensions to the production cuts in effect since last December. At that time WTI crude shot up past $50.00 a barrel and our take was lets see how this lasts. It didn't last too long as crude has been trading in the $40-$55 dollar a barrel range for some time now. Ordinarily you would think that a commodity would rise in value if such production cuts were in place for some time but that hasn't been the case with crude. Why? Because the non-OPEC nations have plenty of oil and aren't as reliant as they once were to OPEC nations for crude. The United States has shutdown wells because of over capacity and inventories. The next OPEC Meeting is scheduled for November 30th.
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