Finally, an Up Day

Good Morning Traders,

As of this writing 7:20 AM EST, here's what we see:

USD:  Sep '23 is Up at 105.730.

Energies: Oct '23 Crude is Down at 89.00.

Financials: The Dec '23 30 Year T-Bond is Up 13 ticks and trading at 115.08.

Indices: The Dec '23 S&P 500 emini ES contract is 94 ticks Lower and trading at 4355.00. 

Gold: The Dec'23 Gold contract is trading Down at 1929.30.  

Initial Conclusion

This is a nearly correlated market.  The USD is Up and Crude is Down which is 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 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.  All of Asia is trading Lower.  Currently all of Europe is trading Lower as well.

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Possible Challenges to Traders:

• S&P/CS Composite-20 HPI y/y is out at 9 AM EST.  This is Major.
• HPI m/m is out at 9 AM EST.  This is Major.
• CB Consumer Confidence is out at 10 AM EST.  This is Major.
• New Home Sales is out at 10 AM EST.  This is Major.
• Richmond Manufacturing Index is out at 10 AM EST.  This is Major.
• FOMC Member Bowman Speaks at 1:30 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 Higher at around 9:15 AM EST as the S&P hit a High at around the same time.  If you look at the charts below the S&P gave a signal at around 9:15 AM and the ZN started its Upward ascend.  Look at the charts below and you'll see a pattern for both assets. S&P hit a High at around 9:150 AM and migrated Lower.  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 30 plus ticks per contract on this trade.   Each tick is worth $15.625.  Please note: the front month for the ZN is now Dec '23.  The S&P contract is now Dec' 23.   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 - Dec 2023 - 9/25/23

S&P - Dec 2023 - 9/25/23

Bias

Yesterday, we gave the markets a Neutral or Mixed bias as the markets had no real sense of direction Monday morning.  The markets veered to the Upside albeit fractionally.  The Dow gained 43 points on the day and the other indices gained traction as well.  Today we are dealing with a nearly correlated market and our bias is to the Downside.

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

Commentary

Finally, we get an Upside Day even though the markets had nothing really to push it upward.  By I guess after a number of days trading Lower it was perhaps time to move up and the indices did, although fractionally.  Today we have far more news than we did yesterday, and all of the reports are Major.  Home Price Index, Consumer Confidence and New Home Sales are all Major and all proven market movers.  Will they propel the markets even further?  As in all things 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 Nov crude dropped to a low of $89.03 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 Nov '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.