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Dead cat bounce

Nick Mastrandrea Market Tea Leaves

USD: Jun '25 is Down at 101.635.

Energies: May '25 Crude is Down at 60.98.

Financials: The Jun '25 30 Year T-Bond is Higher by 28 ticks and trading at 115.13.

Indices: The Jun '25 S&P 500 emini ES contract is 356 ticks Lower and trading at 5400.00

Gold: The Jun'25 Gold contract is trading Up at 3133.20

Initial conclusion

This is not a correlated market. The USD is Down and Crude is Down which is not normal, but 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 Lower which is not 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. Asia traded Mixed. All of Europe is trading Higher.

Possible challenges to traders

Core CPI m/m is out at 8:30 AM EST. This is Major.
CPI m/m is out at 8:30 AM EST. This is Major
CPI y/y is out at 8:30 AM EST. This is Major.
Unemployment Claims is out at 8:30 AM EST. This is Major.
FOMC Member Logan Speaks at 9:30 AM EST. This is Major.
FOMC Member Bowman Speaks at 10 AM EST. This is Major.
FOMC Member Schmid Speaks at 10 AM EST. This is Major.
Natural Gas Storage is out at 10:30 AM EST. This is Major.
FOMC Member Goolsbee Speaks at 12 Noon EST. This is Major.
FOMC Member Harker Speaks at 12 noon EST. This is Major.
30 Year Bond Auction Starts at 1 PM EST. This is Major.
Federal Budget Balance is out at 2 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 dived Lower at around 6:35 AM EST with no economic news is sight. The Dow moved Higher at the same time. Look at the charts below and you'll see a pattern for both assets. The Dow moved Higher at 6:35 AM EST and the ZT moved 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 Short opportunity on the 2-year note, as a trader you could have netted about 30 plus ticks per contract on this trade. Each tick is worth $6.25. Please note: the front month for ZT is now Jun '25 and the Dow is Jun '25 as well. I've changed the format to filled Candlesticks (not hollow) such that it may be more apparent and visible.

Charts courtesy of BarCharts

ZT -Jun 2025 - 4/09/25

Dow - Mar 2025- 4/09/25

Bias

Yesterday we gave the markets a Neutral or Mixed bias as we didn't see much evidence for market correlation Wednesday morning. The markets had other ideas as the Dow closed Higher by 2,963 points and the other indices closed Higher 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 gave the markets a Neutral or Mixed bias as we didn't see much evidence for market correlation Wednesday morning. The markets however decided to trade Higher, much Higher in fact and I suspect that this is a prime example of a Dead Cat Bounce. What is that? Simply put its short covering such that when the markets continue to slide Lower the only way to profit off a short is to buy it back. So, in essence you sell high and buy back low. Want to learn Market Correlation and determine market direction hours before the Opening Bell?

Author

Nick Mastrandrea

Market Tea Leaves

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