Powell talk doesn’t help [Video]

US Dollar: Dec '20 USD Up at 93.720.

Energies: Nov'20 Crude is Up at 40.06.

Financials: The Dec '20 30 year bond is Down 3 ticks and trading at 176.14.

Indices: The Dec S&P 500 emini ES contract is 12 ticks Higher and trading at 3278.00.

Gold: The Dec'20 Gold contract is trading Down at 1909.90 Gold is 7 ticks Lower than its close.

Initial Conclusion

This is not a correlated market. The dollar is Up+ and Crude is Up+ which is not 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 Higher and Crude is trading Higher which is not correlated. Gold is trading Lower which is 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.

Asia is trading mainly Lower at this time with the exception of the Japanese Nikkei exchange which is Higher. Currently all of Europe is trading to the Upside with the exception of the Spanish Ibex exchange which is Lower.

Possible Challenges To Traders Today:

• Existing Home Sales is out at 10 AM EST. This is Major.

• Richmond Manufacturing Index is out at 10 AM EST. This is Major.

• Fed Chair Powell Testifies 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 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 9:45 AM EST. The ZB hit a High at around that time and the S&P moved Higher. If you look at the charts below ZB gave a signal at around 9:45 AM EST and the S&P moved Higher at around the same time. Look at the charts below and you'll see a pattern for both assets. ZB hit a High at around 9:45 AM EST and the S&P was moving Higher 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 Shorting opportunity on the 30 year bond, as a trader you could have netted about 20 ticks per contract on this trade. Each tick is worth $31.25. Please note: the front month for the ZB is now Dec '20. The S&P contract is also Dec '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

Bias

Yesterday we gave the markets a Downside bias and the markets didn't disappoint. The Dow dropped 510 points and the other indices lost ground as well. Today we aren't dealing with a correlated market and our bias is Neutral.

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

Commentary

It would seem as though Fed Chair Powell's comments to a Congressional Committee didn't make any difference as the Dow dropped over 800 points during the regular session and settled at 510 points lower than Friday's close. Fed Chair Powell did mention additional stimulus just as we suggested he might do yesterday. Today is Day Two of his testimony so hopefully the markets might listen.