Market downturn as Gold and Crude rise ahead of key reports

USD: Dec '24 is Up at 104.235.

Energies: Nov '24 Crude is Down at 70.38.

Financials: The Dec '24 30 Year T-Bond is Down 7 ticks and trading at 118.08.

Indices: The Dec '24 S&P 500 emini ES contract is 48 ticks Lower and trading at 5880.50.

Gold: The Dec'24 Gold contract is trading Up at 2763.80.

Initial conclusion

This is not a correlated market.  The USD is Up and Crude is Down which is normal, but 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 Lower which is not 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. Asia traded Mixed with half the exchanges Lower and the other half Higher.  All of Europe is trading Lower with the exception of the Spanish IBEX exchange. 

Possible challenges to traders

• Existing 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 Member Barkin Speaks at 12 Noon. This is Major.

• Fed Beige Book is out at 2 PM EST. This is Major.

Traders, please note that we've changed the Bond instrument from the 10 year (ZN) to the 2 year (ZT). They work exactly the same.  

We've elected to switch gears a bit and show correlation between the 2-year Treasury notes (ZT) and the S&P futures contract.  The YM contract is the Dow Jones Industrial Average, 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 ZT migrated Higher at around 8 AM EST with no real economic reports at the same time and began its Upward climb.  Look at the charts below and you'll see a pattern for both assets. The Dow moved Lower at 8 AM and the ZT moved Higher at around the same time.  These charts represent the newest version of Bar Charts, and I've changed the timeframe to a 15-minute chart to display better.  This represented a Long opportunity on the 2-year note, as a trader you could have netted about 20 ticks per contract on this trade.   Each tick is worth $7.625.  Please note: the front month for ZT is Dec and the Dow is now Dec '24.  I've changed the format to filled Candlesticks (not hollow) such that it may be more apparent and visible.

Charts courtesy of barcharts

ZT -Dec 2024 - 10/22/24

Dow - Dec 2024- 10/22/24

Bias

Yesterday we gave the markets a Downside bias as Crude and Gold were trading Higher Tuesday morning and the indices were all pointed Lower.  During the course of the session the markets did change direction and pointed Higher (hence the U Turn) but by the end of the day the Dow and the S&P closed Lower with Nasdaq being the only hold out. 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, Tuesday comes, and Gold and Crude were all trading Higher. This to us was a clear indication for a Downside Day especially given the fact that two of the three instruments we use for market correlation purposes were all trading Higher. The markets didn't disappoint as most of the indices closed Lower yesterday. Today we have Existing Home Sales, Crude Oil Inventories and the Fed Beige Book at 2 PM. Will the Downslide continue? Only time will tell.