Market expectations soar as anticipation builds around Fed's interest rate decision

USD: Sept '24 is Down at 101.340.

Energies: Sept '24 Crude is Up at 73.95.

Financials: The Sept '24 30 Year T-Bond is Up 7 ticks and trading at 124.08.

Indices: The Sept '24 S&P 500 emini ES contract is 113 ticks Higher and trading at 5622.25.

Gold: The Dec'24 Gold contract is trading Up at 2535.20.

Initial conclusion

This is not a correlated market.  The USD is Down and Crude is Up which is normal, but the 30 Year T-Bond is trading Up.  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 Higher and Crude is trading Higher which is not 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 trading mainly Higher with the exception of the Hang Seng exchange.  All of Europe is trading Higher.

Possible challenges to traders

• Fed Chair Powell Speaks at 10 AM EST. This is Major.

• New Home Sales is out at 10 AM EST. This is Major.

• FOMC Member Goolsbee Speaks at 12:30 PM EST. This is Major.

• FOMC Member Goolsbee Speaks at 1:45 PM EST. This is Major.

• FOMC Member Goolsbee Speaks at 2:15 PM 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 10-year Treasury notes (ZN) 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 Lower at around 8:30 AM EST.  If you look at the charts below the ZT gave a signal at around 8:30 AM with no real economic news in sight and started its Downward slide.  Look at the charts below and you'll see a pattern for both assets. The Dow moved Higher at 8:30 AM and the ZT moved Lower at around the same time.  These charts represent the newest version of BarCharts, and I've changed the timeframe to a 15-minute chart to display better.  This represented a Short opportunity on the 2-year note, as a trader you could have netted about 20 ticks per contract on this trade.   Each tick is worth $7.625.  Please note: the front month for ZT is Sept and the Dow is now Sept '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 -Sept 2024 - 08/22/24

Dow - Sept 2024- 08/22/24

Bias

Yesterday we gave the markets an Upside bias as both the bonds and Gold were Lower and that usually represents an Upside Day.  The markets however had other ideas and migrated Lower.  The Dow closed 178 points Lower and the other indices traded Lower 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

Well as the old saying goes "what goes up must come down and vice versa."  On Wednesday everyone was pumped up based on the news that the Federal Reserve will in fact lower interest rates at the September meeting and whereas there is nothing official from the Fed stating such, this is a classic example of "perception becoming reality."  The only other industry that I can think of where this statement is true is the Technology arena where perception became reality all the time.  There is an announcement expected by the Federal Reserve today, however what that will say is of course unknown at the present time.  Today the major news (besides the Fed members speaking) is New Home Sales out at 10 AM EST.