This is not a correlated market. The dollar is Down- and crude is Down- which is not normal and the 30 year bond is trading Down. The Financials should always correlate with the US dollar such that if the dollar is lower then bonds should follow and vice-versa. The indices are Down and Crude is trading Down which is not correlated. Gold is trading Up 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 traded lower and currently all of Europe is trading lower as well.

Possible Challenges To Traders Today

– Final Wholesale Inventories is out at 10 AM. This is not major.

– Crude Oil Inventories is out at 10:30 AM EST. This is major.

– 10-y Bond Auction starts at 1 PM 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 10 AM EST with no economic news to speak of. The ZB hit a high at around that time and the YM hit a low. If you look at the charts below ZB gave a signal at around 10 AM EST and the YM was moving higher at the same time. Look at the charts below and you’ll see a pattern for both assets. ZB hit a high at around 10 AM EST and the YM hit a low. These charts represent the latest version of Trend Following Trades and I’ve changed the timeframe to a 30 minute chart to display better. This represented a shorting opportunity on the 30 year bond, as a trader you could have netted about 30 plus ticks per contract on this trade. Each tick is worth $31.25. We added a Donchian Channel to the charts to show the signals more clearly.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Bias

Yesterday we gave the markets a neutral bias as it was a Presidential election in the United States. The Dow gained 73 points and the other indices gained ground as well. Today however the Dow futures are 600-700 points lower on the news that Donald Trump won the presidency. As such our bias is to the downside.

Could this change? Of Course. Remember anything can happen in a volatile market.

Commentary

Who said the markets can’t move on Election Day? Ordinarily you don’t see much in the way of movement on Election Day but this certainly was the exception to that rule. The Dow gained 73 points yesterday and about 450 points in the last two days combined. The other indices gained ground as well and this despite a tepid Jolts Jobs numbers report which came in at 5.49 million versus 5.67 million expected.

The above paragraph was written yesterday afternoon after the market closed. Based on the news that Mr. Trump won the election, the Dow futures are 600-700 points lower, as of this writing (3 AM Wednesday). Both Asia and Europe are trading lower at this hour as well. If anyone thought the markets were uncertain before, they have yet to see uncertainty as no one on Wall Street wanted a Trump victory and now the markets must reassess itself to determine what sectors make sense in a Trump regime.

Author

Nick Mastrandrea

Market Tea Leaves

EUR/USD holds lower ground near 1.1850 ahead of EU/ US data

EUR/USD remains in the negative territory for the fourth successive session, trading around 1.1850 in European trading on Friday. A broadly cautious market environment paired with modest US Dollar demand undermines the pair ahead of the Eurozone GDP second estimate and the critical US CPI data.

GBP/USD keeps losses around 1.3600, awaits US CPI for fresh impetus

GBP/USD holds moderate losses at around 1.3600 in the European session on Friday, though it lacks bearish conviction. The US Dollar remains supported amid softer risk tone and ahead of the US consumer inflation figures due later in the NA session on Friday.

Gold trims intraday gains to $5,000 as US inflation data loom

Gold retreats from the vicinity of the $5,000 psychological mark, though sticks to its modest intraday gains heading into the European session. Traders now look forward to the release of the US consumer inflation figures for more cues about the Fed policy path. The outlook will play a key role in influencing the near-term US Dollar price dynamics and provide some meaningful impetus to the non-yielding bullion.

US CPI data set to show modest inflation cooling as markets price in a more hawkish Fed

The US Bureau of Labor Statistics will publish January’s Consumer Price Index data on Friday, delayed by the brief and partial United States government shutdown. The report is expected to show that inflationary pressures eased modestly but also remained above the Federal Reserve’s 2% target.

A tale of two labour markets: Headline strength masks underlying weakness

Undoubtedly, yesterday’s delayed US January jobs report delivered a strong headline – one that surpassed most estimates. However, optimism quickly faded amid sobering benchmark revisions.

Solana Price Forecast: Mixed market sentiment caps recovery

Solana (SOL) is trading at $79 as of Friday, following a correction of over 9% so far this week. On-chain and derivatives data indicates mixed sentiment among traders, further limiting the chances of a price recovery.