DC makes markets chaotic

USD: Sept '24 is Up at 101.360.

Energies: Sept '24 Crude is Up at 73.23.

Financials: The Sept '24 30 Year T-Bond is Down 2 ticks and trading at 124.26.

Indices: The Sept '24 S&P 500 emini ES contract is 45 ticks Higher and trading at 5631.00.

Gold: The Dec'24 Gold contract is trading Down at 2545.70.

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 Down.  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 Lower which is 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.  Asia trading mainly Lower.  All of Europe is trading Higher.

Possible challenges to traders

• Crude Oil Inventories are out at 10:30 AM EST.  This is Major.

• FOMC Meeting Minutes is out at 2 M 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 Higher 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 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 BarCharts, 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 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 - 08/20/24

Dow - Sept 2024- 08/20/24

Bias

Yesterday we gave the markets an Upside bias as both the USD and the bonds were Lower and that usually represents an Upside Day.  The markets had other ideas as the Dow dropped 62 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

So much with all the hoopla from the Dem Convention Center.  The markets want proof that a rate reduction is eminent and thus far all we get is hearsay and inuendo. The markets are chaotic to say the least.  Each day it is more and more difficult to analyze the markets as someone will say something crazy and the markets go crazy.  Is this just because it's an Election Year? Well, we've had Election years before, but they were never as chaotic as this cycle is proving to be.  There is no clear direction because we aren't getting proof positive that something will happen.  Case is point.  We "hear" that the Fed will reduce rates in September, but do we get a clear confirmation that this will happen??  No, we don't.  We "hear" from both camps as to all the wonderful things they will do once in office.  Do we get an outline on what the costs are and how it will be paid for?? No, we don't.  All of this is reflected in the markets on a daily basis.  Do these geniuses think about what will happen to people's retirement and 401K plans if this nonsense continues?  No, they don't because it isn't their money.  Government employees get pensions they don't get 401K's as we mere mortals do.  Not to worry because they are told in advance what stocks will be coming to market and can buy them even before they are traded in the open markets. Registered Reps have to be concerned about insider trading but apparent that rule doesn't apply to the folks in DC.