Nick Mastrandrea
Market Tea Leaves
US Dollar: Jun. USD is Down at 89.735.
Energies: May '18 Crude is Up at 63.66.
Financials: The June 30 year bond is Down 5 ticks and trading at 143.22.
Indices: The June S&P 500 emini ES contract is 8 ticks Lower and trading at 2721.75.
Gold: The April gold contract is trading Up at 1316.90. Gold is 50 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 Lower and Crude is trading Up+ which is correlated. Gold is trading Up+ 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 Asia is trading mainly Mixed with half the exchanges trading Higher and the other half Lower. Currently all of Europe is trading Higher.
Possible Challenges To Traders Today
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Current Account is out at 8:30 AM EST. This is major.
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Existing Home Sales is out at 10 AM EST. This is major.
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Crude Oil Inventories is out at 10:30 AM EST. Major
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FOMC Economic Projections is out at 2 PM EST. Major.
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FOMC Statement is out at 2 PM EST. This is major.
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Federal Funds Rate is out at 2 PM EST. This is major.
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FOMC Press Conference starts at 2:30 PM. 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 10 AM. 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 10 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 10 AM and the YM hit a High. 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 10 ticks per contract on this trade. Each tick is worth $31.25.
Charts Courtesy of MultiCharts built on an AMP platform.
Bias
Yesterday we gave the markets a Neutral bias as half the instruments we track were trading Higher and the other half Lower with no clear trend or correlation. The Dow gained 116 points and the other indices gained ground as well. Given that today is FOMC Day we will maintain a Neutral bias.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Today the major news will really start at 2 PM EST this afternoon when the FOMC makes its announcement. Given that there will be a press conference at 2:30 PM our take is the Fed will hike the FFR (Federal Funds Rate) often called the Overnight Rate which is the rate the Federal Reserve charges banks to borrow capital from them. The banks then add their override and what we pay in terms of an interest rate reflects that charge. We perceive that the Fed may hike rates once per quarter for a total of 4 rate hikes over the calendar year. This will tie in neatly with what has been predicted. Chief amongst their justifications is the booming job market but the other half of that coin is inflation which is nowhere to be seen. We'll have to see what happens during the press conference....
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.
Trading in the commodities markets involves substantial risk and YOU CAN LOSE A LOT OF MONEY, and thus is not appropriate for everyone. You should carefully consider your financial condition before trading in these markets, and only risk capital should be used.
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.
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