Quadruple witching and govt shutdown

USD: Dec '24 is Down at 107.830.

Energies: Jan '25 Crude is Down at 68.82.

Financials: The Mar '25 30 Year T-Bond is Up 12 ticks and trading at 114.13.

Indices: The Dec '24 S&P 500 emini ES contract is 240 ticks Lower and trading at 5874.00.

Gold: The Feb'25 Gold contract is trading Up at 2620.40.

Initial conclusion

This is not a correlated market.  The USD is Down and Crude is Down which is not normal, but the 30 Year T-Bond is trading Higher.  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 Lower and Crude is trading Lower which is not correlated. Gold is trading Higher which is correlated with the US dollar trading Down.  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. All of Asia traded Lower.  All of Europe is trading Lower as well. 

Possible challenges to traders

• FOMC Member Daly Speaks at 7:30 AM EST.  This is Major.

• Core PCE Price Index m/m is out at 8:30 AM EST.  This is Major.

• Personal Income m/m is out at 8:30 AM EST.  This is Major.

• Personal Spending m/m is out at 8:30 AM EST.  This is Major.

• Revised UoM Consumer Sentiment is out at 10 AM EST.  This is not Major.

• Revised UOM Inflation Expectations is out at 10 AM EST.  This is not 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 around 12 noon EST with no news in sight.  The Dow dived Lower at the same time.  Look at the charts below and you'll see a pattern for both assets. The Dow moved Lower at 12 noon 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 a dozen plus ticks per contract on this trade.   Each tick is worth $7.625.  Please note: the front month for ZT is now Mar '25 and the Dow is still 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 -Mar 2025 - 12/19/24

Dow - Dec 2024- 12/19/24

Bias

Yesterday we gave the markets an Upside bias as the indices were correlated that way, but the markets had other ideas.  The Dow migrated Higher by 15 points, but the other indices closed Lower. Today we aren't dealing with a correlated market, and our bias is to the Downside.

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

Commentary

So today we have the dual challenge of Quadruple Witching Friday and a looming government shutdown.  The shutdown happened because Congress had come to an agreement on a spending bill, but "President" Musk and the president-elect Donald Trump shot down the agreed upon plan as he wants a freeze on spending until January 2027.  Yes, that is more than two years away and is totally unrealistic.  This shutdown will happen because last night the new plan was voted on but did not pass the House of Representatives.  There is no backup plan so it will happen.  This means that anyone employed by the government won't get paid, anyone requiring government aid for damages due to hurricanes and floods won't see relief.  And where is the sitting President on all this?  No one seems to know but it's obvious that Biden is playing the lame duck now and is waiting to get out of DC.  Since when does a non-elected billionaire like Musk get to decide on any of this?  Doesn't he have businesses to run? Well, I guess time will tell how it all works out.