US Dollar: Dec '22 USD is Down at 104.735.

Energies: Jan '23 Crude is Down at 70.41.

Financials: The Mar '23 30 Year T-Bond is Up 19 ticks and trading at 130.16.

Indices: The Dec '22 S&P 500 emini ES contract is 43 ticks Higher and trading at 3947.00. 

Gold: The Feb'23 Gold contract is trading Down at 1803.50. Gold is 70 ticks Lower than its close.

Initial conclusion

This is not a correlated market. The dollar is Down, and Crude is Down which is not normal, and the 30 Year T-Bond is trading Higher.  The Financials should always correlate with the US dollar such that if the dollar is lower, then the bonds should follow and vice-versa. The S&P is Higher, and Crude is trading Lower which is correlated. Gold is trading Lower 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. Currently all of Asia is trading Lower. Currently all of Europe is trading Lower as well with the exception of the Milan Exchange which is Higher.

Possible challenges to traders today

  • 10-y Bond Auction starts at 1 PM EST. This is Major.

  • Federal Budget Balance is out at 2 PM EST. This is Major.

  • Lack of Major Economic news.

Treasuries

Traders, please note that we've changed the Bond instrument from the 30 year (ZB) to the 10 year (ZN). They work exactly the same.  

We've elected to switch gears a bit and show correlation between the 10-year bond (ZN) 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 likened to a seesaw, when up goes up the other should go down and vice versa.

On Friday the Bonds hit a High at around 8:30 AM EST. The S&P hit a Low at around that time and the Bonds moved Lower shortly thereafter.  If you look at the charts below ZN gave a signal at around 8:30 AM and the S&P gave a signal at around the same time. Look at the charts below and you'll see a pattern for both assets. ZN hit a High at around 8:30 AM and the S&P moved Higher 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 Short opportunity on the 10-year note, as a trader you could have netted about 20 ticks per contract on this trade. Each tick is worth $15.625.  Please note: the front month for the ZN is now Dec '22. The S&P contract is also Dec' 22.   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

ZN

ZN - Dec 2022 - 12/09/22

SP

S&P - Dec 2022 - 12/09/22

Bias

On Friday we gave the markets an Upside bias as the Bonds and the USD were trading Lower and this usually represents an Upside Day. The markets however had other ideas as the Dow dropped 305 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

On Friday we opted for an Upside Day as the indices were correlated in that direction. Most of the morning the Dow was trading Higher but by 2 PM EST in the afternoon it was evident that the markets were headed Lower, and they did. What caused this?  We think lack of follow thru and commitment from the Smart Money. Remember they can move the markets in any direction they choose as they have the capital and "horsepower" to do so. Today we have a 10-year bond auction starting at 1 PM EST this afternoon and the Federal Budget Balance at 2 PM EST.  Will this be enough to move the markets? 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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