Good Morning Traders,

As of this writing 5:40 AM EST, here’s what we see:

US Dollar: June USD is Up at 99.745.
Energies:
April'20 Crude Down at 20.22.
Financials:
The June'20 30 year bond is Up 69 ticks and trading at 181.07.
Indices:
The March S&P 500 emini ES contract is 300 ticks Lower and trading at 2494.00.
Gold:
The April '20 Gold contract is trading Up at 1606.80. Gold is 100 ticks Higher 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 Higher which is not 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.

At this time all of Asia is trading Lower. Currently all of Europe is trading Lower as well.

 

Possible Challenges To Traders Today:

ADP Non-Farm Employment Change is out at 8:15 AM. This is Major.

Final Manufacturing PMI is out at 9:45 AM EST. This is Major.

ISM Manufacturing PMI is out at 10 AM EST. This is Major.

ISM Manufacturing Prices is out at 10 AM EST. This is Major.

Construction Spending is out at 10 AM EST. This is Major.

Wards Total Vehicle Sales - All day

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 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 liken to a seesaw, when up goes up the other should go down and vice versa.

Yesterday the ZB made a move at around 10:15 AM EST. The ZB hit a Low at around that time and the S&P moved Lower. If you look at the charts below ZB gave a signal at around 10:15 AM and the S&P moved Lower at around the same time. Look at the charts below and you'll see a pattern for both assets. ZB hit a Low at around 10:15 AM EST and the S&P was moving Lower shortly thereafter. 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 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 is now June '20. The S&P contract is now June '20 as well. I've changed the format to Renko bars such that it may be more apparent and visible.  

Charts Courtesy of MultiCharts built on an AMP platform.

Correlation

Correlation

 

Bias

Yesterday we gave the markets an Upside bias as both the Bonds and Gold were trading Lower yesterday morning and this is usually indicative of an Upside day. The markets however had other ideas as the Dow dropped 410 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

So yesterday prior to the markets opening many companies have suggested that they will not meet earnings expectations and this seemed to un-nerve the markets. Whereas the markets were so bullish on Monday, this turned to fear yesterday. Today we have about 8 economic reports, all of which are major so perhaps they can shift market direction; but 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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