US Dollar: Dec '22 USD is Up at 112.895.
Energies: Dec '22 Crude is Down at 88.55.
Financials: The Dec '22 30 Year note is Down 47 ticks and trading at 119.08.
Indices: The Dec '22 S&P 500 emini ES contract is 96 ticks Lower and trading at 3746.00.
Gold: The Dec'22 Gold contract is trading Down at 1623.40. Gold is 266 ticks Lower than its close.
Initial conclusion
This is not a correlated market. The dollar is Up, and Crude is Down which is normal, but the 30-year Bond is trading Lower. 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 Lower, and Crude is trading Lower 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. Currently all of Asia is trading Lower. All of Europe is trading Lower as well.
Possible challenges to traders today
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Challenger Job Cuts is out at 7:30 AM EST. Major.
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Unemployment Claims is out at 8:30 AM EST. Major.
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Prelim Nonfarm Productivity is out at 8:30 AM EST. Major.
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Prelim Unit Labor Costs are out at 8:30 AM EST. Major.
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Trade Balance is out at 6:30 AM EST. Major.
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Final Services PMI is out at 9:45 AM EST. This is Major.
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ISM Services PMI is out at 10 AM EST. This is Major.
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Factory Orders are out at 10 AM EST. This is Major.
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Natural Gas Storage is out at 10:30 AM EST. This is Major.
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.
Yesterday the ZN made its move at around 10 AM EST. The ZN hit a Low at around that time and the S&P moved Lower shortly thereafter. If you look at the charts below ZN gave a signal at around 10 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 Low at around 10 AM and the S&P moved Lower 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 Long opportunity on the 10-year note, as a trader you could have netted about a dozen 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 - Dec 2022 - 11/02/22
S&P - Dec 2022 - 11/01/22
Bias
Yesterday we gave the markets a Neutral bias given that it was FOMC Day. The markets went from intraday highs to lows and the Dow closed 505 points Lower, the other indices closed Lower as well. Today we aren't dealing with a correlated market and our bias is Neutral.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
We always say this every time there is an FOMC Meeting, the markets have never shown any sense of normalcy on that day and we will always maintain a Neutral or Mixed bias. A Neutral bias means the markets could go anywhere and often does. Look at what happened yesterday. The Fed announces a rate hike of three quarters of a percentage point or 75 basis points. The market drops then the Fed provides language in their statement that suggests that they will slow down in the future, the market rises. The Fed has a press conference, and the Dow drops over 500 Lower, the other indices follow suite. Personally, we do not advocate trading on a Neutral bias day as there are too many variables and, in our opinion, you are risking your hard-earned trading capital and it isn't worth it.
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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