Nick Mastrandrea
Market Tea Leaves
USD: Sept '24 is Up at 101.145.
Energies: Oct '24 Crude is Up at 74.95.
Financials: The Dec '24 30 Year T-Bond is Up 7 ticks and trading at 124.12.
Indices: The Sept '24 S&P 500 emini ES contract is 51 ticks Lower and trading at 5623.00.
Gold: The Dec'24 Gold contract is trading Up at 2551.10.
Initial conclusion
This is not a correlated market. The USD is Up and Crude is Up which is not normal, and 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 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 trading mainly Mixed with half the exchanges Higher and the other half Lower. All of Europe is trading Higher.
Possible challenges to traders
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Prelim GDP q/q is out at 8:30 AM EST. This is Major.
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Prelim GDP Price Index q/q is out at 8:30 AM EST. This is Major.
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Unemployment Claims are out at 8:30 AM EST. This is Major.
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Goods Trade Balance is out at 8:30 AM EST. This is Major.
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Prelim Wholesale Inventories m/m is out at 8:30 AM EST. This is Major.
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Pending Home Sales m/m is 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.
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FOMC Member Bostic Speaks at 3:30 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 Lower at around 8:15 AM EST. If you look at the charts below the ZT gave a signal at around 8:15 AM with no real news and started its Downward slide. Look at the charts below and you'll see a pattern for both assets. The Dow moved Higher at 8:15 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 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 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 - 08/28/24
Dow - Sept 2024- 08/28/24
Bias
Yesterday we gave the markets a Neutral or Mixed bias as we saw no correlation at all Wednesday morning. The markets veered to the Downside as the Dow rose 9 points but the S&P and Nasdaq fell by hundreds. 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
So yesterday we gave the markets a Mixed or Neutral bias and the markets didn't disappoint as the Dow closed 9 points Higher but the other indices fell. The Nasdaq alone fell by over 200 points. This kind of thing can happen when we aren't dealing with a correlated market. Today we have about 8 or 9 different economic reports, all of which are Major. We have GDP numbers out at 8:30 AM EST as well as Unemployment Claims at the same time. Will this propel the markets in an Upward direction? 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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