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 the bonds should follow and vice-versa. The S&P is Lower, and Crude is trading Higher which is correlated. Gold is trading Higher which is 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. Currently Asia is trading Higher with the exception of the Indian Sensex exchange. Europe is trading Lower with the exception of the German Dax exchange.

Possible challenges to traders today

Goods Trade Balance is out at 8:30 AM EST. This is Major.
Prelim Wholesale Inventories is out at 8:30 AM EST. Major.
New Home Sales is out at 10 AM EST. This is Major.
Crude Oil Inventories are out at 10:30 AM EST. Major.

Treasuries

Traders, please note that we've changed the Bond instrument from the 30 year (ZB) to the 10 year (ZN). They work exactly the same.

We've elected to switch gears a bit and show correlation between the 10-year bond (ZN) 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 likened to a seesaw, when up goes up the other should go down and vice versa.

Yesterday the ZN made its move at around 8:20 AM EST. The ZN hit a Low at around that time and the S&P moved Lower shortly thereafter. If you look at the charts below ZN gave a signal at around 8:20 AM and the S&P gave a signal at around the same time. Look at the charts below and you'll see a pattern for both assets. ZN hit a Low at around 8:20 AM and the S&P moved 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 10-year note, as a trader you could have netted about 30 plus ticks per contract on this trade. Each tick is worth $15.625. Please note: the front month for the ZN is now Dec '22. The S&P contract is also Dec' 22. 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

ZN - Dec 2022 - 10/25/22

S&P - Dec 2022 - 10/25/22

Bias

Yesterday we gave the markets a Downside bias as both the USD and the Bonds were trading Higher Tuesday morning. This usually represents a Down Day for the indices however the markets had other ideas as the Dow traded Higher by 337 points and the other indices traded Higher 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

Dazed and Confused? You bet. The economic news reported wasn't good and yet the market migrated Higher. In fact, all the economic news reported was negative. So, what's going on? My take is the institutionals or the Smart Money want to take the DJIA as close to it's all time high as they can get it, after which they will sell the market short and make a fortune on the way down. I don't think Smart Money is concerned about fundamentals; they are just concerned with profit. Today we have New Home Sales which is major and a market mover. Can this steer the markets properly? Only time will tell.

Author

Nick Mastrandrea

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Editor's Picks

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GBP/USD clings to gains above 1.3400

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Initial conclusion