Fedspeak day

USD: Dec '24 is Down at 103.745.

Energies: Nov '24 Crude is Up at 70.75.

Financials: The Dec '24 30 Year T-Bond is Down 11 ticks and trading at 118.11.

Indices: The Dec '24 S&P 500 emini ES contract is 114 ticks Lower and trading at 5867.50.

Gold: The Dec'24 Gold contract is trading Up at 2753.20.

Initial conclusion

This is not a correlated market.  The USD is Down and Crude is Up which is normal, and the 30 Year T-Bond is trading Lower.  The Financials should always correlate with the US dollar such that if the dollar is Higher, then the bonds should follow and vice-versa. The S&P is Lower and Crude is trading Higher which is correlated. Gold is trading Higher 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. Asia traded mainly Lower with the exception of the Shanghai and Hang Seng exchanges.  All of Europe is trading Lower. 

Possible challenges to traders

• FOMC Member Harker Speaks at 10 AM EST. This is Major.

• Richmond Manufacturing Index m/m is out at 10 AM EST. This is Major.

Traders, please note that we've changed the Bond instrument from the 10 year (ZN) to the 2 year (ZT).  They work exactly the same.  

We've elected to switch gears a bit and show correlation between the 2-year Treasury notes (ZT) and the S&P futures contract.  The YM contract is the Dow Jones Industrial Average, 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.

Yesterday the ZT migrated Higher at around 8:30 AM EST with no real economic reports at the same time and began its Upward climb.  Look at the charts below and you'll see a pattern for both assets. The Dow moved Lower at 8:30 AM and the ZT moved Higher at around the same time.  These charts represent the newest version of Bar Charts, and I've changed the timeframe to a 15-minute chart to display better.  This represented a Long opportunity on the 2-year note, as a trader you could have netted about a dozen ticks per contract on this trade.   Each tick is worth $7.625.  Please note: the front month for ZT is Dec and the Dow is now Dec '24.  I've changed the format to filled Candlesticks (not hollow) such that it may be more apparent and visible.

Charts courtesy of Barcharts

ZT -Dec 2024 - 10/21/24

Dow - Dec 2024- 10/21/24

Bias

Yesterday we gave the markets a Downside bias as the USD, Crude and Gold were trading Higher Monday morning and the markets (for the most part) kept its Downside bias with the Dow trading Lower by 344 points, the S&P fell by 11 with only the Nasdaq managing a 50-point gain.  Mind you that the Nasdaq was down all session long and only managed to eke out a small gain in the last 20 minutes of trading.  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, we wake up Monday morning to discover that the USD, Gold and Crude were all trading Higher.  This to us was a clear indication for a Downside Day especially given the fact that three of the instruments we use for market correlation purposes were all trading Higher.  The markets didn't disappoint as most of the indices closed Lower yesterday.  Today we have Richmond Manufacturing Index and an FOMC member speaking.  Will the Downslide continue?  Only time will tell...