Debt ceiling talks drive markets lower again

USD:  Jun '23 is Up at 103.940.

Energies: Jul '23 Crude is Down at 73.13.

Financials: The Jun '23 30 Year T-Bond is Down 15 ticks and trading at 126.04.

Indices: The Jun '23 S&P 500 emini ES contract is 112 ticks Higher and trading at 4154.00. 

Gold: The Jun'23 Gold contract is trading Down at 1962.60. Gold is 20 ticks Lower than its close.

Initial conclusion

This is not a correlated market.  The USD is Up, Crude is Down which is normal, but the 30 Year T-Bond is trading Lower. 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 Higher, and Crude is trading Lower which is correlated. Gold is trading Lower 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 the present time Asia is trading mainly Lower with the exception of the Nikkei and Indian Sensex exchanges. Europe is trading Mixed with half the exchanges Higher and the other half Lower.

Possible challenges to traders today

• Prelim GDP q/q is out at 8:30 AM EST. This is Major. 

• Prelim GDP Price Index q/q is out at 8:30 AM EST. This is Major.

• Unemployment Claims are out at 8:30 AM EST. This is Major.

• Pending Home Sales m/m is out at 10 AM EST. This is Major.

• Natural Gas Storage is out at 10:30 AM EST. This is 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 migrated Higher at around 12:15 PM EST as the S&P hit a High at around the same time.  If you look at the charts below the ZN gave a signal at around 12:15 PM and the ZN continued its Upward trend. Look at the charts below and you'll see a pattern for both assets. S&P hit a High at around 12:15 PM and migrated Lower. 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 15 ticks per contract on this trade. Each tick is worth $15.625. Please note: the front month for the ZN is now Jun '23.  The S&P contract is also Jun' 23.   I've changed the format to filled Candlesticks (not hollow) such that it may be more apparent and visible.  

Charts courtesy of MultiCharts built on an AMP platform

ZN - Jun 2023 - 5/24/23

S&P - Jun 2023 - 5/24/23

Bias

Yesterday we gave the markets a Downside bias as both the USD and the Bonds were trading Higher and that usually reflects a Down day. The markets didn't disappoint as the Dow dropped 256 points and the other indices lost ground as well. Today we aren't dealing with a correlated market and our bias is to the Upside.

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

Commentary

Yesterday still no resolution on the Debt Ceiling even though Biden and McCartney had met and had discussions. Bottom line there was no resolution and the markets reacted accordingly.  All indices fell as we suggested they would.  Today we have GDP numbers, and it is our hope that this can turn the markets around. The problem is now the Federal Reserve is getting involved and there is talk that more interest rate hikes are forthcoming.  That would be devastating to both the markets and the economy at large.  It would result in lower consumer spending and in an economy where 70 percent of GDP comes from consumer spending; the economy would take a hit and the massive layoffs would commence. I just hope that the "mental giants" in DC have some idea of what they are doing and the dangers they are provoking. Experienced traders have seen this movie before and I for one hate reruns.