Nick Mastrandrea
Market Tea Leaves
US Dollar: Sep '22 USD is Down at 103.960.
Energies: Aug '22 Crude is Up at 105.53.
Financials: The Sep '22 30 Year bond is Down 9 ticks and trading at 136.26.
Indices: The Jun '22 S&P 500 emini ES contract is 120 ticks Higher and trading at 3830.00.
Gold: The Aug'22 Gold contract is trading Up at 1830.10. Gold is 3 ticks Higher than its close.
Initial conclusion
This is not a correlated market. The dollar is Down, and Crude is Up which is normal, and the 30-year 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 Higher, and Crude is trading Higher which is not correlated. Gold is trading Higher which is 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. All of Asia is trading Higher. Currently all of Europe is trading Higher as well.
Possible challenges to traders today
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FOMC Member Bullard Speaks at 7:30 AM EST. Major.
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Revised UoM Consumer Sentiment is out at 10 AM EST. This is not Major.
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Revised UoM Inflation Expectations is out at 10 AM EST. This is not Major.
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New Home Sales is out at 10 AM EST. Major.
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Crude Oil Inventories are out at 11 AM EST. Major.
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 made its move at around 10 AM EST. The ZN hit a Low at around that time and the S&P moved Lower shortly thereafter. If you look at the charts below ZN gave a signal at around 10 AM EST and the S&P moved Lower 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 EST and the S&P was moving Lower shortly thereafter. 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 Sep '22. The S&P contract is also Sep' 22 as well. The front months are now Sep' 22. I've changed the format to Heikin-Ashi such that it may be more apparent and visible.
Charts courtesy of MultiCharts built on an AMP platform
ZN - Sep 2022 - 06/23/22
S&P - Sep 2022 - 06/23/22
Bias
Yesterday we gave the markets a Neutral bias as the indices showed no sign of market correlation. The Dow traded Higher by 194 points and the other indices traded Higher as well. Today we aren't dealing with a correlated market and our bias is to the Upside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday we witnessed Day Two of Fed Chair Powell's testimony to a congressional committee. If there was any doubt that this chairman is an inflation hawk, make no mistake about. He is even willing to risk a recession to do so. He has already stated that the US economy can handle further rate hikes; aka more rate hikes are coming in order to combat inflation. However, he is overlooking the consequence of his actions. Yes rate hikes maybe necessary to combat inflation but to do so dramatically will hurt the US economy in the long run. When Ben Bernanke was in office one of the things he said in 2008 was that the major cause of the Great Depression was the absence of credit and capital as banks weren't willing to extend credit and cutting off consumer spending hurt the US economy causing major job loss. I'm NOT saying that that will happen, I'm saying that if the Fed moves slowly they may avert a recession and possibly engineer a soft landing. But as in all things, only time will tell....
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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