Nick Mastrandrea
Market Tea Leaves
US Dollar: Dec. USD is Up at 97.095.
Energies: Jan '19 Crude is Down at 52.50.
Financials: The Mar 30 year bond is Up 8 ticks and trading at 142.13.
Indices: The Dec S&P 500 emini ES contract is 116 ticks Lower and trading at 2672.25.
Gold: The Dec Gold contract is trading Down at 1241.80. Gold is 8 ticks Lower than its close.
Initial Conclusion
This is not a correlated market. The dollar is Up+ and Crude is Down- which is normal and the 30 year Bond is trading Higher. 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 Lower which is not correlated. Gold is trading Down- which is 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 Lower with many exchanges trading into negative triple digit territory. At the current time all of Europe is trading Lower as well.
Possible Challenges To Traders Today
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Challenger Job Cuts y/y is out at 7:30 AM EST. This is major.
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ADP Non-Farm Employment Change is out at 8:15 AM. Major.
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Revised Nonfarm Productivity is out at 8:30 AM. This is not major.
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Revised Unit Labor Costs is out at 8:30 AM. This is not major.
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Trade Balance is out at 8:30 AM EST. This is major.
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Unemployment Claims are out at 8:30 AM EST. This is major.
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Final Services PMI is out at 9:45 AM EST. This is major.
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ISM Non-Manufacturing PMI is out at 10 AM. This is major.
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Factory Orders m/m are out at 10 AM EST. This is major.
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Crude Oil Inventories is out at 11 AM EST. This is major.
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FOMC Member Bostic Speaks at 12:15 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.
On Tuesday the ZB made it's move at around 8 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 8 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 8 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 30 plus ticks per contract on this trade. Each tick is worth $31.25. Please note: the front month for the ZB contract is now March, 2019
Charts Courtesy of MultiCharts built on an AMP platform.
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Bias
Last Tuesday we gave the markets a Neutral bias as we didn't see any correlation between the indices and the USD. The Dow dropped 799 points and the other indices lost 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
It appears as though the trade talks that began over the weekend in Buenos Aires may have been a one day wonder as the Dow dropped about 800 points on Tuesday with the other indices losing ground as well. Today we have about 13 economic reports, 11 of which will be reported during market hours. The reason for this is because the NYSE and the Nasdaq were closed yesterday for former President Bush's funeral; so in essence the reports that would have been released on Wednesday have now been diverted to Thursday.
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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