Nick Mastrandrea
Market Tea Leaves
USD: Sep '23 is Up at 103.975.
Energies: Oct '23 Crude is Up at 79.95.
Financials: The Sep '23 30 Year T-Bond is Down 8 ticks and trading at 119,21.
Indices: The Sep '23 S&P 500 emini ES contract is 46 ticks Higher and trading at 4397.25.
Gold: The Aug'23 Gold contract is trading Down at 1945.40. Gold is 17 ticks Lower than its close.
Initial conclusion
This is not a correlated market. The USD is Up and Crude is Up which is not normal, but the 30 Year T-Bond is trading Lower. 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 Higher, and Crude is trading Higher 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. All of Asia is trading Lower with the exception of the Singapore exchange. Currently all of Europe is trading Higher.
Possible challenges to traders
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FOMC Member Harker Speaks at 9 AM EST. This is Major.
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FOMC Member Harker Speaks at 9:40 AM EST. This is 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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Fed Chair Powell Speaks at 10:05 AM EST. This is 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 migrated Higher at around 9:20 AM EST as the S&P hit a High at around the same time. If you look at the charts below the S&P gave a signal at around 9:20 AM and the ZN started its Upward ascend. Look at the charts below and you'll see a pattern for both assets. S&P hit a High at around 9:20 AM and migrated Lower. 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 plus ticks per contract on this trade. Each tick is worth $15.625. Please note: the front month for the ZN is now Sept '23. The S&P contract is now Sep' 23. 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 - Sept 2023 - 8/24/23
S&P - Sep 2023 - 8/24/23
Bias
Yesterday we gave the markets a Neutral bias as we saw no correlation Thursday morning. The markets veered to the Downside with the Dow trading 374 points Lower and the other indices traded Lower 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 it seemed as though the markets was waiting on its hands for something to happen or an announcement to be made. The economic news reported showed a decline in Durable Goods, but Core Durables showed a gain, Unemployment Claims were better than expected. The markets were spooked as yesterday represented Day One of the Fed's Annual Symposium held at Jackson Hole, Wyoming. It is at this meeting that the Fed talks about its plans (or perceived plans) for the future. To date the Fed hasn't made any mention of interest rate cuts even though inflation is getting better. Apparently "getting better" isn't good enough. So, the markets are spooked, however that should be resolved this morning when the Fed Chair Powell speaks shortly after 10 AM EST. However 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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