The day after – Federal Reserve decided to reduce interest rates

USD: Dec '24 is Down at 107.730.

Energies: Jan '25 Crude is Down at 69.69.

Financials: The Mar '25 30 Year T-Bond is Down 17 ticks and trading at 114.17.

Indices: The Dec '24 S&P 500 emini ES contract is 160 ticks Higher and trading at 5982.00.

Gold: The Feb'25 Gold contract is trading Down at 2625.90.

Initial conclusion

This is a nearly correlated market. The USD is Down and Crude is Down which is not normal, and 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 Lower which is correlated. Gold is trading Lower which is not 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

• Final GDP q/q is out at 8:30 AM EST.  This is Major.

• Unemployment Claims is out at 8:30 AM EST.  This is Major.

• Final GDP Price Index q/q is out at 8:30 AM EST.  This is Major.

• Philly Fed Manufacturing Index is out at 8:30 AM EST.  This is Major.

• Existing Home Sales is out at 10 AM EST.  This is Major.

• CB Leading Index m/m is out at 10 AM EST.  This is Major.

• Natural Gas Storage is out at 10:30 AM EST.  This is Major.

• TIC Long Term Purchases is out at 4 PM 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 8:30 AM EST while awaiting the various 8:30 AM news items.  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 8:30 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 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 - 12/18/24

Dow - Dec 2024- 12/18/24

Bias

Yesterday we gave the markets a Neutral or Mixed bias given that it was FOMC Day, and we always maintain a Neutral bias on that day.  The Dow dropped 1,123 points on the day and the other indices lost ground as well.  Today we are dealing with a nearly correlated market, and it's correlated to the upside.

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

Commentary

So the Federal Reserve decided to reduce interest rates by a quarter point or 25 basis points.  Whereas one would think that this is well received news, the other side of the coin is that the Fed won't be too hasty in cutting rates in the future going forward.  We alluded to this yesterday and I think it might be as long as 6 months before we see another rate reduction, if any at all.  Today we have Philly Fed Manufacturing Index as well as Existing Home Sales and hopefully this might propel the markets forward.