Dow Takes a Dive

Good Morning Traders,

As of this writing 4:30 AM EST, here’s what we see:

US Dollar: June USD is Down at 96.650.
Energies: April '19 Crude is Up at 62.89.
Financials: The Jun 30 year bond is Down 25 ticks and trading at 147.17.
Indices: The June S&P 500 emini ES contract is 62 ticks Higher and trading at 2882.50.
Gold: The April Gold contract is trading Up at 1296.00 Gold is 6 ticks Higher than its close.

Initial Conclusion

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

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

Possible Challenges To Traders Today

• ADP Non-Farm Employment Change is out at 8:30 AM. Major

• Final Services PMI is out at 9:45 AM EST. Major.

• ISM Non-Manufacturing PMI is out at 10 AM. This is major.

• Crude Oil Inventories is out at 10:30 AM EST. 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 a major move at around 8 AM EST. The ZB hit a Low at around that time and the YM hit a High. If you look at the charts below ZB gave a signal at around 8 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 Low at around 8 AM and the YM was moving Lower at the same time. 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 30 year bond, as a trader you could have netted about 12 ticks per contract on this trade. Each tick is worth $31.25. Please note: the front month for the ZB contract is now June, 2019

Charts Courtesy of MultiCharts built on an AMP platform.

Bias

Yesterday we gave the markets a Downside bias as the USD, Bonds and Gold were all trading Higher and this usually represents a Downside day. The Dow dropped 300 points but the other indices gained ground. 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 we called for a downside bias and it appears as though for the Dow this remained the case. The economic news reported yesterday wasn't stellar. Durable Goods and Core Durable Goods came in less than expected and did not meet expectation. From our perspective we will just follow our rules for market correlation and judge accordingly. Today we have ADP Non-Farm Employment which will tie in with Friday's Non-Farm Payrolls.