Nick Mastrandrea
Market Tea Leaves
US Dollar: Mar '23 USD is Up at 101.830.
Energies: Feb '23 Crude is Down at 79.95.
Financials: The Mar '23 30 Year T-Bond is Up 19 ticks and trading at 131.14.
Indices: The Mar '23 S&P 500 Emini ES contract is 119 ticks Lower and trading at 4003.00.
Gold: The Feb'23 Gold contract is trading Down at 1925.60. Gold is 98 ticks Lower than its close.
Initial conclusion
This is not a correlated market. The dollar is Up, and Crude is Down which is normal, and the 30 Year T-Bond is trading Higher. 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 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. Currently all of Asia is trading Higher except the Indian Sensex exchange which is Lower. Europe however is trading Lower at the present time. .
Possible challenges to traders today
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Crude Oil Inventories is out at 10:30 AM EST. This is Major.
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Lack of Major Economic news.
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 AM EST. The S&P was trading Lower at around the same time. If you look at the charts below ZN gave a signal at around 10 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 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 30 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 - Mar 2023 - 1/24/23
S&P - Mar 2023 - 1/24/23
Bias
Yesterday we gave the markets a Downside bias as the Bonds, Gold and Crude were all trading Higher and this usually represents a Down day. The markets closed Mixed with only the Dow showing any gain. 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
Yesterday we gave the markets a Downside bias as almost all instruments that we use for market correlation purpose was pointed Higher and that usually reflects a Down Day. Initially the markets traded Lower, but then in the afternoon the Dow migrated Higher and closed 104 points Higher. Today the markets will be left to its own devices as the only economic report we have is Crude Oil Inventories, out at 10:30 AM EST.
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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