Shutdown – Dead Ahead??

US Dollar: Mar. USD is Up at 90.320.

Energies: Mar ’18 Crude is Down at 61.49.

Financials: The Mar 30 year bond is Down 6 ticks and trading at 144.14.

Indices: The Mar S&P 500 emini ES contract is 24 ticks Higher and trading at 2674.25.

Gold: The Feb gold contract is trading Down at 1312.60.  Gold is 20 ticks Lower than its close.

Initial Conclusion

This is not a correlated market.  The dollar is Up+ and Crude is Down-  which is normal but 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 Down- which is correlated. Gold is trading Down 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.

At this hour Asia is trading mainly Higher with the exception of the Aussie and Shanghai exchanges which are Lower.  As of this writing all of Europe is trading Lower.

Possible Challenges To Traders Today

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

• Mortgage Delinquencies.  This is major.

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

• 30-y Bond Auction starts at 1 PM 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 with no real economic news in sight.  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 hit a Low.  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 30 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 Downside bias and the markets responded accordingly.  The Dow dropped 19 points and the other indices lost ground as well.  Today we aren’t dealing with a correlated market and our bias is to the Upside.

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

Commentary

Yesterday we gave the markets a Downside bias and guess what?  The markets dropped and all we did was to follow our rules of Market Correlation which suggested a downside bias yesterday morning.  Given that today is February 8th the concern will now shift to the DC folks to determine if whether or not they’ve come up with a suitable budget for this fiscal year.  President Trump has threaten to veto any budget that does not include immigration reform, so time will tell how this all works out.