Tariffs Torpedo Markets…again

Nick Mastrandrea Market Tea Leaves

Good Morning Traders,

As of this writing 4 AM EST, here’s what we see:

US Dollar: Sept. USD is Down at 94.715.
Energies: Jul '18 Crude is Up at 65.47.
Financials: The Sept 30 year bond is Down 2 ticks and trading at 144.01.
Indices: The Sept S&P 500 emini ES contract is 30 ticks Higher and trading at 2773.75.
Gold: The Aug gold contract is trading Down at 1276.00. Gold is 26 ticks Lower 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 bonds should follow and vice-versa. The S&P is Higher and Crude is trading Higher which is not correlated. Gold is trading Down- which is not 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.

At this hour all of Asia is trading Higher and currently Europe is trading Higher as well.

Possible Challenges To Traders Today

Current Account is out at 8:30 AM EST. This is major.
Fed Chair Powell Speaks at 9:30 AM EST. This is major.
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.

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 9 AM EST. The ZB hit a Low at around that time and the YM hit a High. If you look at the charts below ZB gave a signal at around 9 AM EST and the YM was moving Lower at the same time. Look at the charts below and you'll see a pattern for both assets. ZB hit a Low at around 9 AM and the YM was moving Lower 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 long opportunity on the 30 year bond, as a trader you could have netted about a dozen ticks per contract on this trade. Each tick is worth $31.25.

Charts Courtesy of MultiCharts built on an AMP platform

Bias

Yesterday we gave the markets a Downside bias as the USD, the Bonds and Gold were all trading higher and this usually represents a downside day. The markets didn't disappoint as the Dow dropped 287 points and the other indices lost ground 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 was announced that President Trump approved additional tariffs on China amounting to another 200 billion dollars. The markets did not greet very well with the Dow falling by triple digits. Today we have Existing Home Sales and the Fed Chair speaking, both of which are major and proven market movers. So time will tell...

Author

Nick Mastrandrea

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