What goes up

US Dollar: Sept USD is Up at 96.955.

Energies: Aug'20 Crude is Down at 40.53.

Financials: The Sept'20 30 year bond is Up 3 ticks and trading at 179.03.

Indices: The Sept S&P 500 emini ES contract is 10 ticks Lower and trading at 3134.00.

Gold: The Aug'20 Gold contract is trading Up at 1811.80. Gold is 19 ticks Higher than its close.

 

Initial Conclusion

This is not a correlated market. The dollar is Up+ and Crude is Down- which is normal and the 30 year Bond is trading Higher as well. 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 Lower which is not correlated. Gold is trading Higher which is not 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 time Asia is trading Mixed with half the exchanges trading Higher and the other half Lower. Currently all of Europe is trading to the Downside.

 

Possible Challenges To Traders Today:

• Crude Oil Inventories is out at 10:30 AM EST. This is Major.
• 10-y Bond Auction starts at 1 PM EST. This is Major.
• Consumer Credit is out at 3 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 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 10:30 AM EST. The ZB hit a Low at around that time and the S&P moved Lower. If you look at the charts below ZB gave a signal at around 10:30 AM EST and the S&P moved Lower at around the same time. Look at the charts below and you'll see a pattern for both assets. ZB hit a Low at around 10:30 AM EST and the S&P was moving Lower 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 Long opportunity on the 30 year bond, as a trader you could have netted about 30 plus ticks per contract on this trade. Each tick is worth $31.25. Please note: the front month for the ZB is now Sept '20. The S&P contract has been changed to Sept '20. 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 as the Bonds and the USD were both trading Higher and this is typically not a good indication for an Upside day hence our bias was to the Downside. The markets didn't disappoint as the Dow dropped by 397 points and the other indices lost ground as well. Today we aren't dealing with a correlated market and our bias is to the Downside.

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

 

Commentary

Yesterday we ranted and raved about how the markets advanced and sometimes that situation can last for days on end. From our perspective we will keep our rules intact to determine market direction on any given day. Yesterday the markets retreated as we suggested it might given the way we dissect the markets. Can this change? As we say each and every day "anything can happen in a volatile market" and this market has proven itself to be quite volatile.