Fedspeak doesn’t propel markets

USD: Dec '23 is Up at 106.070.

Energies: Dec '23 Crude is Up at 89.64.

Financials: The Dec '23 30 Year T-Bond is Up 17 ticks and trading at 108.12.

Indices: The Dec '23 S&P 500 emini ES contract is 56 ticks Lower and trading at 4289.00. 

Gold: The Dec'23 Gold contract is trading Up at 1995.60.  

Initial conclusion

This is not a correlated market. The USD is Up and Crude is Up which is not normal, and 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 Lower, and Crude is trading Higher which is correlated. Gold is trading Higher which is not correlated with the US dollar trading Up. 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. All of Asia is traded Lower. All of Europe is trading Lower as well.

Possible challenges to traders

• FOMC Member Harker Speaks at 9 AM EST.  This is Major.

• No Major Economic News to speak of.

• Lack of Major Economic News.

Treasuries

Traders, please note that we've changed the Bond instrument from the 30 year (ZB) to the 10 year (ZN).  They work exactly the same.  

We've elected to switch gears a bit and show correlation between the 10-year bond (ZN) and the S&P futures contract. The S&P contract is the Standard and Poor's, 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 ZN migrated Higher at around 8 AM EST as the S&P hit a High at around the same time. If you look at the charts below the S&P gave a signal at around 8 AM and the ZN started its Upward trend. Look at the charts below and you'll see a pattern for both assets. S&P hit a High at around 8 AM and migrated Lower. 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 10-year note, as a trader you could have netted about 30 ticks per contract on this trade. Each tick is worth $15.625. Please note: the front month for the ZN is now Dec '23.  The S&P contract is now Dec' 23. I've changed the format to filled Candlesticks (not hollow) such that it may be more apparent and visible.  

Charts Courtesy of MultiCharts built on an AMP platform

ZN - Dec 2023 - 10/19/23

S&P - Dec 2023 - 10/19/23

Bias

Yesterday we gave the markets an Upside bias as both the USD and the bonds were pointed Lower Thursday and tis usually reflects an Upside Day. The markets had other ideas as the Dow dropped 251 points and the other indices lost ground as well. Today we aren't dealing with a correlated market and our bias is to the Downside.

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

Commentary

So, what happened yesterday? Why did the markets fall so dramatically? The markets started off Higher as we suggested but the FOMC boys started talking and all that changed. Fed Chair Powell didn't help much as he talked about pushing bond yields Higher than 5%. Understand that whenever the yield goes up, prices go down. This is not good for those who day trade bonds and/or other related instruments. It became apparent during the afternoon that the markets would close Lower, and they did.  Today we have no economic news to speak of so the markets will be left to their own devices.