Reading market correlation: Stay ahead of tariff turbulence

USD: Sept '25 is Down at 98.255.  

Energies: Oct '25 Crude is Down at 64.36.

Financials: The Dec '25 30 Year T-Bond is Higher by 2 ticks and trading at 113.16.

Indices: The Sep '25 S&P 500 emini ES contract is 116 ticks Higher and trading at 6454.50.

Gold: The Dec'25 Gold contract is trading Up at 3614.40.

Initial conclusion

This is not a correlated market. The USD is Down and Crude is Down which is not normal, but the 30 Year T-Bond is trading Higher.  The Financials should always correlate with the US dollar such that if the dollar is Higher, then the bonds should follow and vice-versa. The S&P is Higher and Crude is trading Lower which is 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. Asia traded Lower with the exception of the Indian Sensex exchange. Currently all of Europe is trading Higher.

Possible challenges to traders

• FOMC Member Musalem Speaks at 9 AM EST.  This is Major.
• Jolts Job Openings is out at 10 AM EST.  This is Major.
• Factory Orders m/m is out at 10 AM EST.  This is Major.
• Wards Total Vehicle Sales is out All Day by brand.  This is Major.
• FOMC Member Kashkari Speaks at 1:30 PM EST.  This is Major.
• Beige Book is out at 2PM EST.  This is Major.

Traders, please note that we've changed the Bond instrument from the 10 Year (ZN) to the 2 Year (ZT).  They work exactly the same.

We've elected to switch gears a bit and show correlation between the 2-year Treasury notes (ZT) and the S&P futures contract.  The YM contract is the Dow Jones Industrial Average, and the purpose is to show reverse correlation between the two instruments.  Remember it's likened to a seesaw, when up goes up the other should go down and vice versa.

Yesterday the ZT climbed Higher at around 8 AM EST with various news items pending.  The Dow dived Lower at the same time.  Look at the charts below and you'll see a pattern for both assets. The Dow dived Lower at around 8 AM EST and the ZT climbed Higher at around the same time.  These charts represent the newest version of Bar Charts, and I've changed the timeframe to a 15-minute chart to display better.  This represented a Long opportunity on the 2-year note, as a trader you could have netted about 20 plus ticks per contract on this trade.   Each tick is worth $6.25.  Please note: the front month for ZT is now Sep '25 and the Dow is now Sep '25.  I've changed the format to filled Candlesticks (not hollow) such that it may be more apparent and visible.

Charts courtesy of barcharts

ZT -Sep 25 - 9/02/25

Dow - Sep 2025- 9/02/25

Bias

Yesterday we predicted a Down Day for the markets, and they didn't disappoint.  The Dow dropped 249 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

Unfortunately, it seems as though no one is happy with the tariff situation and the markets wasted no time showing its displeasure. Will this change today?