Yesterday Makes Eight

Good Morning Traders,

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

US Dollar: Sept. USD is Down at 94.280.
Energies: Jul '18 Crude is Up at 66.17.
Financials: The Sept 30 year bond is Down 11 ticks and trading at 143.20.
Indices: The Sept S&P 500 emini ES contract is 40 ticks Higher and trading at 2762.50.
Gold: The Aug gold contract is trading Down at 1270.40. Gold is 2 ticks Lower 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 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 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 mainly Higher with the exception of the Nikkei and Singapore exchanges which are lower at this time. Currently all of Europe is trading Higher.

Possible Challenges To Traders Today

• Flash Manufacturing PMIis out at 9:45 AM EST. This is major.

• Flash Services PMI is out at 9:45 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 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. 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 8 AM EST and the YM was moving Lower at the same time. Look at the charts below and you'll see a pattern for both assets. ZB hit a Low at around 8 AM and the YM was moving Lower 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 long 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.

Charts Courtesy of MultiCharts built on an AMP platform.

Bias

Yesterday we gave the markets a Neutral bias as the indices didn't seem to have any sense of direction Thursday morning. The Dow lost 196 points and the other indices lost ground as well. Today we aren't dealing with a correlated market however our bias is to the Upside.

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

Commentary

Yesterday morning the S&P, Nasdaq and Dow were all trading higher in the pre market. However this quickly changed as the morning wore on. Once again the fear of a looming trade war is dominating the markets and the Smart Money doesn't like it. Who is the Smart Money? All the institutionals who have much to lose if in fact a trade war erupts. At some point the market will rebound. When will that be? No one can say but we will strive to keep you abreast as events unfold.