This is a nearly correlated market. The dollar is Up+ and Crude is Down- which is 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 Lower and Crude is trading Lower 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 all of Asia is trading to the Downside. At the current time all of Europe is trading Lower as well.

Possible Challenges To Traders Today

Core Retail Sales is out at 8:30 AM EST. This is major.
Retail Sales is out at 8:30 AM EST. This is major.
Capacity Utilization Rate is out at 9:15 AM EST. Major.
Industrial Production is out at 9:15 AM EST. This is major.
Flash Manufacturing PMI is out at 9:45 AM. Major.
Flash Services PMI is out at 9:45 AM. This is major.
Business Inventories is out at 10 AM EST. 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 8 AM EST. The ZB hit a High at around that time and the YM hit a Low. If you look at the charts below ZB gave a signal at around 8 AM EST and the YM was moving Higher at the same time. Look at the charts below and you'll see a pattern for both assets. ZB hit a High at around 8 AM and the YM was moving Higher 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 Shorting opportunity on the 30 year bond, as a trader you could have netted about 15 ticks per contract on this trade. Each tick is worth $31.25. Please note: the front month for the ZB contract is now March, 2019

Charts Courtesy of MultiCharts built on an AMP platform.

Bias

Yesterday we gave the markets a Neutral bias as we didn't see much in the way of correlation. The Dow gained 70 points but the S&P and Nasdaq both lost ground in Thursday's trading. All in all a Mixed or Neutral day. Today we are dealing with a nearly correlated market and our bias is to the Downside.

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

Commentary

In recent years at around this time of year the talk has always been "will we see a Santa Claus rally this year?" This is because in recent years there's always been a "holiday or Santa Claus" rally. Maybe it's because its December and close to the holidays. From our perspective the markets have runup quite a bit this year and given that next week there's an FOMC Meeting; the one aspect that could provoke a Santa Claus rally is if the Fed decides to hike or not. Most pundits and analysts believe that the Fed will hike one more time in 2018 so the key will be the what is discussed at the press conference following the release. Our belief is if the Fed decides to forego a rate hike at next week's meeting, that will clearly set off a rally. If they hike and have a dovish stance in the announcement, we may see a toned down upswing however if this isn't the case then in all likelihood we won't see an upswing. But as in all things, only time will tell....

On Thursday, April 5th we had the honor and privilege to be interviewed by David Lincoln on his You Tube channel. David is a floor trader for the options markets. If you listen to this interview, you will enjoy it.

Author

Nick Mastrandrea

Market Tea Leaves

EUR/USD climbs to two-week highs beyond 1.1900

EUR/USD is keeping its foot on the gas at the start of the week, reclaiming the 1.1900 barrier and above on Monday. The US Dollar remains on the back foot, with traders reluctant to step in ahead of Wednesday’s key January jobs report, allowing the pair to extend its upward grind for now.

GBP/USD hits three-day peaks, targets 1.3700

GBP/USD is clocking decent gains at the start of the week, advancing to three-day highs near 1.3670 and building on Friday’s solid performance. The better tone in the British Pound comes on the back of the intense sekk-off in the Greenback and despite re-emerging signs of a fresh government crisis in the UK.

Gold treads water around $5,000

Gold is trading in an inconclusive fashion around the key $5,000 mark on Monday week. Support is coming from fresh signs of further buying from the PBoC, while expectations that the Fed could turn more dovish, alongside concerns over its independence, keep the demand for the precious metal running.

Crypto Today: Bitcoin steadies around $70,000, Ethereum and XRP remain under pressure

Bitcoin hovers around $70,000, up near 15% from last week's low of $60,000 despite low retail demand. Ethereum delicately holds $2,000 support as weak technicals weigh amid declining futures Open Interest. XRP seeks support above $1.40 after facing rejection at $1.54 during the previous week's sharp rebound.

Japanese PM Takaichi nabs unprecedented victory – US data eyed this week

I do not think I would be exaggerating to say that Japanese Prime Minister Sanae Takaichi’s snap general election gamble paid off over the weekend – and then some. This secured the Liberal Democratic Party (LDP) an unprecedented mandate just three months into her tenure.

Ripple exposed to volatility amid low retail interest, modest fund inflows

Ripple (XRP) is extending its intraday decline to around $1.40 at the time of writing on Monday amid growing pressure from the retail market and risk-off sentiment that continues to keep investors on the sidelines.