Dow Takes a Dive…again

Good Morning Traders,

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

US Dollar: Dec. USD is Down at 94.690.
Energies: Nov '18 Crude is Up at 71.77.
Financials: The Dec 30 year bond is Down 23 ticks and trading at 138.04.
Indices: The Dec S&P 500 emini ES contract is 128 ticks Higher and trading at 2777.50.
Gold: The Dec Gold contract is trading Down- at 1222.50. Gold is 51 ticks Lower 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 Down- which is not correlated with the US dollar trading Lower. 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 to the Upside with many exchanges is negative triple digit territory. Currently all of Europe is trading Higher as well.

Possible Challenges To Traders Today

  • Import Prices m/m is out at 8:30 AM EST. Major.

  • Prelim UoM Consumer Sentiment is out at 10 AM. Major.

  • Prelim UoM Inflation Expectations are out at 10 AM. Major.

  • FOMC Member Bostic Speaks at 12:30 AM EST. This is Major.

  • Federal Budget Balance is out. 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 8:30 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 8:30 AM EST and the YM was moving Lower at the same time. Look at the charts below and you'll see a pattern for both assets. ZB hit a Low at around 8:30 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 30 minute chart to display better. This represented a Long opportunity on the 30 year bond, as a trader you could have netted about 15 ticks per contract on this trade. Each tick is worth $31.25.

Charts Courtesy of MultiCharts built on an AMP platform.

Tea

Tea

Bias

Yesterday we gave the markets a Downside bias and the markets didn't disappoint. The Dow dropped 546 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

We are starting to see a recurring pattern whereby the market is gravitating to the downside. Could this be the work of the Smart Money looking to capitalize on a market moving Lower? Anything is possible in a volatile market. It doesn't exactly help when Trump starts blasting the Federal Reserve. What I find interesting is two years ago as Candidate Trump he blasted the Federal Reserve for not hiking fast enough. What a difference a couple of years can make. Could we see a rebound to the upside today? Anything is possible in a volatile market.

Trading performance displayed herein is hypothetical. The following Commodity Futures Trading Commission (CFTC) disclaimer should be noted.

Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance trading results is that they are generally prepared with the benefit of hindsight.

In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results.

There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

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In addition, these markets are often liquid, making it difficult to execute orders at desired prices. Also, during periods of extreme volatility, trading in these markets may be halted due to so-called “circuit breakers” put in place by the CME to alleviate such volatility. In the event of a trading halt, it may be difficult or impossible to exit a losing position.