The Markets Strike Back

Good Morning Traders,

As of this writing 4:20 AM EST, here’s what we see:

US Dollar: Dec. USD is Up at 94.925.
Energies: Nov '18 Crude is Up at 71.45.
Financials: The Dec 30 year bond is Down 9 ticks and trading at 138.14.
Indices: The Dec S&P 500 emini ES contract is 49 ticks Lower and trading at 2756.00.
Gold: The Dec Gold contract is trading Up+ at 1231.20. Gold is 91 ticks Higher than its close.

Initial Conclusion

This is not a correlated market. The dollar is Up+ and Crude is Up+ which is not 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 Lower and Crude is trading Higher which is correlated. Gold is trading Up+ which is not correlated with the US dollar trading Higher. 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 to the Downside with the exception of the Indian Sensex which is Higher. Currently all of Europe is trading Lower with the exception of the Milan exchange which is Higher at this time.

Possible Challenges To Traders Today

• Retail Sales is out at 8:30 AM EST. This is major.

• Core Retail Sales is out at 8:30 AM EST. This is major.

• Empire State Mfg Index is out at 8:30 AM. This is major.

• Business Inventories is out at 10 AM EST. This is major.

• Federal Budget Balance is out. This is Major.

• Treasury Currency Report is out. 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.

On Friday the ZB made it's move at around 9:30 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 9:30 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 9:30 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 20 ticks per contract on this trade. Each tick is worth $31.25.

Charts Courtesy of MultiCharts built on an AMP platform.

Bias

On Friday we gave the markets an Upside bias and the markets didn't disappoint. The Dow gained 287 points and the other indices gained ground as well. 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

This past week we witnessed enormous volatility the like of which we have not seen since the Great Recession started back in 2008. There was no particular reason as to why this occurred. We can't point to any one event that made this happen. As such it can only the the work of the Smart Money in action. Back in 2008-2009 we used to talk about the PPT (Plunge Protection Team). At that time it was very interesting to see that after the 9:30 Opening Bell rang the ES contract would either go immediately up or down. This can only be achieved by institutions that have the capital to do so and when they trade, they don't trade with one or two contracts. They use tens of thousands.