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Happy new year [Video]

US Dollar: Mar '23 USD is Down at 103.420.

Energies: Feb '23 Crude is Down at 78.24.

Financials: The Mar '23 30 Year T-Bond is Down 9 ticks and trading at 125.07.

Indices: The Mar '23 S&P 500 emini ES contract is 54 ticks Lower and trading at 3859.00. 

Gold: The Feb'23 Gold contract is trading Down at 1824.30.  Gold is 16 ticks Lower than its close.

Initial conclusion

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

Possible challenges to traders today

  • Chicago PMI is out at 9:45 AM EST. This is Major.

  • Lack of Major economic reports.

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 hit a Low at around 10:30 AM EST.  The S&P was trading Higher at around the same time. If you look at the charts below ZN gave a signal at around 10:30 AM and the S&P gave a signal at around the same time.  Look at the charts below and you'll see a pattern for both assets. ZN hit a Low at around 10:30 AM and migrated Higher.  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 20 ticks per contract on this trade. Each tick is worth $15.625.  Please note: the front month for the ZN is now Mar '23. The S&P contract is now Mar' 23 as well. 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

ZN - Mar 2023 - 12/29/22

S&P

S&P - Mar 2023 - 12/29/22

Bias

Yesterday we gave the markets a Neutral bias as we didn't see a correlated market. Hence the Neutral bias. The markets veered to the Upside and the Dow closed 345 points Higher. The other indices closed Higher as well.  Today we aren't dealing with a correlated market and our bias is Neutral.

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

Commentary

Yesterday we had a light session in terms of economic news.  Unemployment Claims came in as expected and the markets migrated Higher after the report came out. Today we only have Chicago PMI out at 9:45 AM EST. We want to wish all of you a Very Happy New Year. We will be back on Tuesday, January 3rd as the markets are closed Monday for the New Year holiday. Have a safe and happy holiday.

Author

Nick Mastrandrea

Nick Mastrandrea

Market Tea Leaves

Nick Mastrandrea over 20 years experience in trading and formerly held a NASD Series 7. He currently holds a NJ Life, Health and Variable Authority. Nick is a published writer and his work has appeared in Futures Magazine, TraderPlanet and others.

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