CPI bolsters markets

USD: Sept '24 is Up at 101.705.

Energies: Oct '24 Crude is Up at 68.42.

Financials: The Dec '24 30 Year T-Bond is Down 7 ticks and trading at 126.18.

Indices: The Sept '24 S&P 500 emini ES contract is 28 ticks Higher and trading at 5568.25.

Gold: The Dec'24 Gold contract is trading Up at 2544.20.

Initial conclusion

This is not a correlated market. The USD is Up and Crude is Up which is not normal, but 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 Higher and Crude is trading Higher 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. Currently all of Asia is trading Higher with the exception of the Shanghai exchange which is Lower. All of Europe is trading Higher.

Possible challenges to traders

Core PPI m/m is out at 8:30 AM EST. This is Major.
PPI m/m is out at 8:30 AM EST. This is Major.
Unemployment Claims are out at 8:30 AM EST. This is Major.
Natural Gas Storage is out at 10:30 AM EST. This is Major.
30-y Bond Auction starts at 1 PM EST. This is Major.
Federal Budget Balance is out at 2 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 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 8:30 AM EST as the CPI data was released and began its Downward climb. 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 Bar Charts, 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 30 plus 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 still 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 -Dec 2024 - 09/11/24

Dow - Sept 2024- 09/11/24

Bias

Yesterday we gave the markets a Downward bias as Crude was Up, the Bonds and Gold were up, and this usually represents a Downward bias. The markets had other ideas as the Dow gained 125 points and the other indices gained ground as well. Today we aren't dealing with a correlated market and our bias is Neutral or Mixed.

Could this change? Of Course. Remember anything can happen in a volatile market.

Commentary

Yesterday what we saw suggested a Down day as the Bonds, Gold and Crude were all trading Higher and that usually represents a Down day. So, what happened? The CPI numbers came out at 8:30 AM EST and it showed the lowest rate of inflation since 2020 and then the markets took off gaining hundreds of points. This is why always say that this too could change when giving market direction.

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