Nick Mastrandrea
Market Tea Leaves
USD: Mar '24 is Up at 101.135.
Energies: Feb '24 Crude is Down at 70.97.
Financials: The Mar '24 30 Year T-Bond is Up 3 ticks and trading at 121.05.
Indices: The Dec '23 S&P 500 emini ES contract is 68 ticks Lower and trading at 4781.50.
Gold: The Feb'24 Gold contract is trading Up at 2030.60.
Initial conclusion
This is not a correlated market. The USD is Up and Crude is Down which is normal, and 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 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. All of Asia is trading Lower. Currently all of Europe is trading Lower as well.
Possible challenges to traders
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Retail Sales s out at 8:30 AM EST. This is Major.
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Core Retail Sales is out at 8:30 AM EST. This is Major.
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Import Prices m/m is out at 8:30 AM EST. This is Major.
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FOMC Member Barr Speaks at 9 AM EST. This is Major.
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FOMC Member Bowman Speaks at 9 AM EST. This is Major.
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Industrial Production m/m is out at 9:15 AM EST. This is Major.
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Capacity Utilization Rate is out at 9:15 AM EST. This is Major.
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Business Inventories m/m is out at 10 AM EST. This is Major.
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NAHB Housing Market Index is out at 10 AM EST. This is Major.
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Beige Book is out at 2 PM EST. This is Major.
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FOMC Member Williams Speaks at 3 PM 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 migrated Lower at around 10:40 AM EST as the S&P hit a Low at around the same time. If you look at the charts below the S&P gave a signal at around 10:40 AM and the ZN started its Downward trend. Look at the charts below and you'll see a pattern for both assets. S&P hit a Low at around 10:40 AM and migrated Higher. 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 Short opportunity on the 10-year note, as a trader you could have netted about 20 plus ticks per contract on this trade. Each tick is worth $15.625. Please note: the front month for the ZN is now Mar '24. The S&P contract is now Mar' 24. I've changed the format to filled Candlesticks (not hollow) such that it may be more apparent and visible.
Charts courtesy of MultiCharts built on an AMP platform
ZN - Mar 2024 - 01/12/24
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S&P - Mar 2024 - 01/16/24
Bias
As per our last edition we gave the markets a Downside bias. The markets didn't disappoint as the Dow dropped 232 points and the other indices lost ground as well. 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
Yesterday was the first day back after the MLK holiday and usually we see a spike up after a holiday. That didn't happen yesterday as FOMC Member Christopher Waller mad the remark that the Fed wasn't in any hurry to reduce interest rates. That's all it took to drive the markets down by hundreds of points. This is why each and every time an FOMC Member speaks we always tag that as major because you never know what they're going to say and how the markets will react to what they say. Everyone is enthused with the idea that the Fed will commence interest rate reductions in 2024. Anything contrary to that will be met with a falloff such as we witnessed yesterday. Today we have a virtual tsunami in terms of economic reports. We have 10 scheduled for today, all of which are major. Could these reports propel the markets higher? As in all things, 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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The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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