Nick Mastrandrea
Market Tea Leaves
USD: Dec '24 is Up at 104.030.
Energies: Dec '24 Crude is Up at 70.58.
Financials: The Dec '24 30 Year T-Bond is Down 2 ticks and trading at 117.29.
Indices: The Dec '24 S&P 500 emini ES contract is 98 ticks Higher and trading at 5763.00.
Gold: The Dec'24 Gold contract is trading Up at 2762.60.
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. Asia traded mainly Lower with the exception of the Hang Seng trading Higher. All of Europe is trading Higher.
Possible challenges to traders
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Average Hourly Earnings m/m is out at 8:30 AM EST. This is Major.
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Non-Farm Employment Change is out at 8:30 AM EST. This is Major.
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Unemployment Rate is out at 8:30 AM EST. This is Major.
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Final Manufacturing PMI is out at 9:45 AM EST. This is Major.
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ISM Manufacturing PMI is out at 10 AM EST. This is Major.
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ISM Manufacturing Prices is out at 10 AM EST. This is Major.
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Construction Spending is out at 10 AM EST. This is Major.
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Wards Total Vehicle Sales - All Day by Brand. 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 climbed Higher at around 9 AM EST as the Eco news was released. The Dow slide Lower at the same time. Look at the charts below and you'll see a pattern for both assets. The Dow moved Lower at 9 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 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 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 - 10/31/24
Dow - Dec 2024- 10/31/24
Bias
Yesterday we gave the markets a Neutral or Mixed bias as we saw no evidence of Market Correlation Thursday morning. The markets traded to the Downside as the Dow closed 378points Lower and the other indices closed Lower as well. Given that today is Jobs Friday, we will maintain our Neutral Bias.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
So, the economic news was released and the markets drifted Lower. Why? We can't really say because the news reported wasn't terrible. The only thing we can think is Election Day jitters, especially given that this is a Presidential Election. I think everyone in the financial arena wants Trump to win that that may not be the case. Today is Jobs Friday so our bias is Neutral simply because the markets have never shown any sense of normalcy on this day. Will the news propel the markets forward? Only time will tell...
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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