An uncorrelated market signals hidden risk

Happy New Year!!!

Good Morning Traders,

As of this writing 7:05 AM EST, here's what we see:

USD: Mar '26 is Up at 98.000.  

Energies: Feb '26 Crude is Up at 58.27.

Financials: The Mar '26 30 Year T-Bond is Higher by 11 ticks and trading at 116.05.

Indices: The Mar '26 S&P 500 emini ES contract is 58 ticks Lower and trading at 6929.75

Gold: The Feb'26 Gold contract is trading Down at 4325.40.

Initial Conclusion

This is not a correlated market.  The USD is Up and Crude is Up which is not normal, and the 30 Year T-Bond is trading Higher.  The Financials should always correlate with the US dollar such that if the dollar is Higher, then the bonds should follow and vice-versa. The S&P is Lower and Crude is trading Higher which is 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 traded Lower except the Sensex and Shanghai exchanges.  Currently all of Europe is trading Lower except the Dax and Milan exchanges.

Possible Challenges to Traders                                              

• Unemployment Claims is out at 8:30 AM EST.         This is Major.
• Crude Oil Inventory is out at 10:30 AM EST.              This is Major.
• Natural Gas Storage is out at 12 noon PM EST.        This is Major.

Traders, please note that we've changed the Bond instrument from the 10 Year (ZN) to the 2 Year (ZT).  They work exactly the same.

We've elected to switch gears a bit and show correlation between the 2-year Treasury notes (ZT) and the S&P futures contract.  The YM contract is the Dow Jones Industrial Average, and the purpose is to show reverse correlation between the two instruments.  Remember it's likened to a seesaw, when up goes up the other should go down and vice versa.

Yesterday the ZT climbed Higher at around 8:30 AM EST with no real news items pending at that time.   The Dow dived Lower at around the same time.  Look at the charts below and you'll see a pattern for both assets. The ZT climbed Higher at around 8 AM EST and the Dow dived Lower at around the same time.  These charts represent the newest version of Bar Charts, and I've changed the timeframe to a 15-minute chart to display better.  This represented a Long opportunity on the 2-year note, as a trader you could have netted about a dozen ticks per contract on this trade.  Each tick is worth $6.25.  Please note: the front month for the ZT and YM are both Mar '26.  I've changed the format to filled Candlesticks (not hollow) such that it may be more apparent and visible.

Charts Courtesy of BarCharts