Good Morning Traders,

As of this writing 6 AM EST, here’s what we see:

US Dollar: Mar '23 USD is Up at 102.355.

Energies: Feb '23 Crude is Down at 76.85.

Financials: The Mar '23 30 Year T-Bond is Up 8 ticks and trading at 130.01.

Indices: The Mar '23 S&P 500 emini ES contract is 61 ticks Lower and trading at 4017.25. 

Gold: The Apr'23 Gold contract is trading Down at 1921.10.  Gold is 181 ticks Lower than its close.

Initial Conclusion

This is not a correlated market.  The dollar 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 lower, 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 Lower which is 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. Currently Asia is trading Lower with the exception of the Indian Sensex exchange which is Higher.  All of Europe is trading Lower at the present time.

.

Possible Challenges to Traders Today:

• Employment Cost Index is out at 8:30 AM EST.  Major.
• HPI is out at 9 AM EST.  This is Major.
• S&P/CS Composite-20 HPI is out at 9 AM EST.  This is Major.
• Chicago PMI is out at 9:45 AM EST.  This is Major.
• CB Consumer Confidence is out at 10 AM EST.  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 hit a Low at around 11:30 AM EST.  The S&P was trading Higher at around the same time.  If you look at the charts below ZN gave a signal at around 11:30 AM and the S&P gave a signal at around the same time.  Look at the charts below and you'll see a pattern for both assets. ZN hit a Low at around 11:30 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 Long opportunity on the 10-year note, as a trader you could have netted about a dozen ticks per contract on this trade.   Each tick is worth $15.625.  Please note: the front month for the ZN is now Mar '23.  The S&P contract is now Mar' 23 as well.   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 Click on an image to enlarge it.

ZN - Mar 2023 - 1/30/23

S&P - Mar 2023 - 1/30/23

Bias

Yesterday we gave the markets a Neutral or Mixed bias as we didn't see much in the way of correlation Monday morning.  The Dow traded Lower by 261 points and the other indices closed Lower 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 the markets migrated to the downside after Friday's massive move Higher.  We suspect this was traders seeking to take money off the table or the Smart Money deciding to do the same.   The Dow dropped 261 points and the other indices lost ground and traded Lower as well.  Today we have more economic news than Monday.  Will this serve to move the markets Higher?  Only time will tell...

As readers are probably aware I don't trade equities. While we're on this discussion, let's define what is meant by a good earnings report. A company must exceed their prior quarter's earnings per share and must provide excellent forward guidance. Any falloff between earning per share or forward guidance will not bode well for the company's shares. This is one of the reasons I don't trade equities but prefer futures. There are no earnings reports with futures, and we don't have to be concerned about lawsuits, scandals, malfeasance, etc. Anytime the market isn't correlated it's giving you a clue that something isn't right, and you should proceed with caution. Today our bias is to the Downside.  Could this change? Of course. In a volatile market anything can happen. We'll have to monitor and see.

As I write this the crude markets are Lower, and the S&P is Lower. This is not normal.  Crude and the markets are now reverse correlated such that when the markets are rising, crude drops and vice-versa. Yesterday Mar crude dropped to a low of $77.71 a barrel.  Will it remain below $100 a barrel?  Only time will tell.  Crude still hasn't returned to a sense of normalcy therefore we can't quote support and resistance numbers.  Remember that crude is the only commodity that is reflected immediately at the gas pump.  Please note that the front month for crude is now Mar '23. 

If trading crude today, consider doing so after 10 AM EST when the markets give us better direction.

Crude Oil Is Trading Lower

Crude oil is trading Lower, and the S&P is Lower. This is not normal. Crude typically makes 3 major moves (long or short) during the course of any trading day: around 9 AM EST, 11 AM EST and 2 PM EST when the crude market closes. If crude makes major moves around those time frames, then this would suggest normal trending, if not it would suggest that something is not quite right. As always watch and monitor your order flow as anything can happen in this market. This is why monitoring order flow in today's market is crucial. We as traders are faced with numerous challenges that we didn't have a few short years ago. High Frequency Trading is one of them. I'm not an advocate of scalping however in a market as volatile as this scalping is an alternative to trend trading. Remember that without knowledge of order flow we as traders are risking our hard-earned capital and the Smart Money will have no issue taking it from us. Regardless of whatever platform you use for trading purposes you need to make sure it's monitoring order flow.  To fully capitalize on this newsletter, it is important that the reader understand how the various markets correlate. More on this in subsequent editions.

Nick Mastrandrea is the author of Market Tea Leaves. Market Tea Leaves is a daily newsletter that is dedicated to your trading success. We teach and discuss market correlation. Market Tea Leaves is published daily, pre-market in the United States and can be viewed at www.markettealeaves.com. Interested in Market Correlation? Want to learn more? Signup and receive Market Tea Leaves each day prior to market open. As a subscriber, you’ll also receive our daily Market Bias video that is only available to subscribers.