Dow Hits a New High

Nick Mastrandrea Market Tea Leaves

Good Morning Traders,

As of this writing 4:10 AM EST, here’s what we see:

US Dollar: Dec. USD is Up at 93.575.
Energies: Oct '18 Crude is Up at 70.43.
Financials: The Dec 30 year bond is Up 5 ticks and trading at 140.13.
Indices: The Sept S&P 500 emini ES contract is 22 ticks Higher and trading at 2945.00.
Gold: The Dec Gold contract is trading Up at 1212.80. Gold is 15 ticks Higher than its close.

Initial Conclusion

This is not a correlated market. The dollar is Up+ and Crude is Up+ which is not normal and the 30 year Bond is trading Higher. 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 Higher and Crude is trading Higher which is not correlated. Gold is trading Up+ which is not correlated with the US dollar trading Higher. 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 Asia is trading mainly Higher with the exception of the Indian Sensex exchange which is Lower. Currently all of Europe is trading Higher.

Possible Challenges To Traders

Today Flash Mfg PMI is out at 9:45 AM EST. This is major.
Flash Services PMI is out at 8:30 AM. This is major.

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 11:30 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 11:30 AM EST and the YM was moving Higher at the same time. Look at the charts below and you'll see a pattern for both assets. ZB hit a High at around 11:30 AM and the YM was moving Higher at the same time. 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 Shorting opportunity on the 30 year bond, as a trader you could have netted about a dozen 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 but the markets had other ideas as the Dow hit an all time high. The Dow gained 251 points and the other indices gained ground 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

It appears as though the markets are hell bent on hitting higher highs as the Dow had its best day since January. The Dow gained 251 points to close at 26,657. The economic news that was reported was good in that Unemployment Claims were down, Philly Fed Manufacturing Index was up. Existing Home Sales came in as expected. Today we have Flash Manufacturing PMI as well as Flash Services PMI.

Author

Nick Mastrandrea

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