Dow Drop Continues

Good Morning Traders,

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

US Dollar: Jun. USD is Up at 89.760.
Energies: Jun '18 Crude is Down at 68.04.
Financials: The June 30 year bond is Down 3 ticks and trading at 143.22.
Indices: The June S&P 500 emini ES contract is 33 ticks Lower and trading at 2684.50.
Gold: The June gold contract is trading Down at 1344.20. Gold is 46 ticks Lower than its close.

Initial Conclusion

This is not a correlated market. The dollar is Up+ and Crude is Down- which is normal but 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 Lower- and Crude is trading Lower- which is not correlated. Gold is trading Down- 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.

At this hour all of Asia is trading Lower. All of Europe is trading Lower at this time with the exception of the London exchange which is trading Higher at this hour.

Possible Challenges To Traders Today

• FOMC Member Williams Speaks at 11:15 AM EST. This is major.

• Lack of Major Economic News

 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 8:30 AM EST. The ZB hit a High at around that time and the YM hit a Low. If you look at the charts below ZB gave a signal at around 8:30 AM EST and the YM was moving sideways at the same time. Look at the charts below and you'll see a pattern for both assets. ZB hit a High at around 8:30 AM and the YM was traveling in a sideways pattern. 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 30 plus 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 USD and the Bonds were trading Lower and in theory the indices should have been trading Higher but weren't, hence the Neutral bias. Today we aren't dealing with a correlated market and will maintain a Neutral bias.

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

Commentary

Yesterday we had Philly Fed Manufacturing Index that exceeded expectation and Unemployment Claims that came in lower than the week before; which of course is positive. This wasn't enough to quell the short sellers out there as the indices all traded lower yesterday. The Dow closed 83 points lower and the other indices lost ground as well. Today we only have one FOMC member speaking at 11:15 AM EST. That's it. There is no further economic news for today so the markets will be left up to own devices. Time will tell how this resonates.