Upside Bias = Upside Day

Good Morning Traders,

As of this writing 4:30 AM EST, here’s what we see:

US Dollar: Dec. USD is Down at 96.960.
Energies: Jan '19 Crude is Up at 51.36.
Financials: The Mar 30 year bond is Up 1 tick and trading at 142.24.
Indices: The Dec S&P 500 emini ES contract is 12 ticks Higher and trading at 2655.50.
Gold: The Feb Gold contract is trading Down at 1249.90. Gold is 1 tick Lower than its close.

Initial Conclusion

This is not a correlated market. The dollar is Down- and Crude is Up+ which is normal but 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 Higher and Crude is trading Higher which is not correlated. Gold is trading Down- which is not correlated with the US dollar trading Lower. 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 to the Upside. At the current time all of Europe is trading Higher as well.

Possible Challenges To Traders Today

• Import Prices is out at 8:30 AM EST. This is major.

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

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

• 30-y Bond Auction starts at 1 PM EST. This is major.

• Federal Budget Balance is out at 2 PM EST. 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 8:30 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 8:30 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 8:30 AM and the YM was moving 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 a dozen ticks per contract on this trade. Each tick is worth $31.25. Please note: the front month for the ZB contract is now March, 2019

Charts Courtesy of MultiCharts built on an AMP platform.

Bias

Yesterday we gave the markets an Upside bias as both the USD and the Bonds were trading Lower yesterday morning. The markets didn't disappoint as the Dow gained 157 points and the other indices gained 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

Yesterday we gave the markets an Upside bias as both the USD and the Bonds were trading Lower yesterday morning and this usually bodes well for an upside day. From our perspective all we did was to follow our rules for Market Correlation and be advised that these rules are timeless. If the markets are not following these rules on a particular day, it only means that something isn't right and perhaps you should avoid trading on that day or time.