Downslide Continues

Nick Mastrandrea Market Tea Leaves

Good Morning Traders,

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

US Dollar: Dec. USD is Up at 96.805.
Energies: Jan '19 Crude is Down at 51.23.
Financials: The Mar 30 year bond is Down 5 ticks and trading at 143.01.
Indices: The Dec S&P 500 emini ES contract is 42 ticks Lower and trading at 2680.25.
Gold: The Dec Gold contract is trading Up at 1245.10. Gold is 15 ticks Higher 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 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 Mixed with half the exchanges trading Higher and the other half Lower. At the current time all of Europe is trading Higher.

Possible Challenges To Traders Today

Average Hourly Earnings is out at 8:30 AM EST. This is major.
Non-Farm Employment Change is out at 8:30 AM. Major.
Unemployment Rate is out at 8:30 AM EST. This is major.
Prelim UoM Consumer Sentiment is out at 10 AM. This is major.
Prelim UoM Inflation Expectations is out at 8:30 AM EST. This is major.
Final Wholesale Inventories is out at 8:30 AM EST. This is major.
Natural Gas Storage is out at 10:30 AM EST. This is major.
FOMC Member Brainard Speaks at 12 PM. This is major.
Consumer Credit m/m is out at 3 PM 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 it's 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 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 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 30 plus ticks per contract on this trade. Each tick is worth $31.25. Please note: the front month for the ZB contract is now March, 2019

Charts Courtesy of MultiCharts built on an AMP platform

Bias

Yesterday we gave the markets a Downside bias as both the USD and the Bonds were trading Higher Thursday morning and this usually reflects a Downside day. The markets didn't disappoint as the Down shed 79 points, the S&P lost 4 but the Nasdaq gained 30. Given that today is Non Farm Payrolls our bias is Neutral.

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

Commentary

After a nearly 800 drop on Tuesday, one might think the markets would be pumped to go higher. No such luck yesterday. All the overseas markets dropped which led to the conclusion that the US markets should drop as well which it did. We knew this at 4 AM EST as we saw the lack of market correlation and gave a Downside bias. The markets didn't disappoint and dropped. Today we have Non Farm Payrolls and our bias is Neutral which means the markets could go in any direction today. Something to be mindful of if trading.

Author

Nick Mastrandrea

Market Tea Leaves

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