FOMC Day

Good Morning Traders,

As of this writing 4:20 AM EST, here’s what we see:

US Dollar: Dec. USD is Up at 93.725.
Energies: Oct '18 Crude is Up at 72.35.
Financials: The Dec 30 year bond is Up 10 ticks and trading at 140.03.
Indices: The Dec S&P 500 emini ES contract is 23 ticks Higher and trading at 2927.00.
Gold: The Dec Gold contract is trading Down at 1204.90. Gold is 2 ticks Lower than its close.

Initial Conclusion

This is not a correlated market. The dollar is Up+ and Crude is Up+ which is not normal and the 30 year Bond is trading Higher. 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 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 mainly Higher with the exception of the Indian Sensex exchange which is trading Lower. Currently all of Europe is trading Lower with the exception of the Paris exchange which is fractionally Higher.

Possible Challenges To Traders Today

• New Home Sales is out at 10 AM EST. This is major.

• Crude Oil Inventories is out at 10:30 AM EST. This is major.

• FOMC Economic Projections is out at 2 PM. This is major. FOMC

• Statement is out at 2 PM EST. This is major.

• Federal Funds Rate is out at 2 PM EST. This is major.

• 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 11:30 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 11:30 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 11:30 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 12 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 an Upside bias however the markets had other ideas as the Dow dropped 70 points, the S&P dropped 4 but the Nasdaq gained 14. Given that today is FOMC Day our bias is Neutral.

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

Commentary

Yesterday morning it seemed to us that the markets would go higher as the Bonds and Gold were Lower, however it became apparent that the markets were more concerned over the Fed hiking interest rate and with that the markets dropped. Do we think the Fed will hike? Yes. They've already committed themselves to raising 4 times a year and given that today's meeting will include a press conference; it's a sure sign that they'll raise. Do we think that they should? No. Raising rates is the best way to kill consumer spending and with an economy that is 70% dependent on consumer spending, we don't think it's a good idea.