The financials should always correlate with the US Dollar

USD:  Dec '23 is Down at 106.295.

Energies: Nov '23 Crude is Up at 86.06.

Financials: The Dec '23 30 Year T-Bond is Up 40 ticks and trading at 112.23.

Indices: The Dec '23 S&P 500 emini ES contract is 42 ticks Lower and trading at 4370.00. 

Gold: The Dec'23 Gold contract is trading Up at 1900.20.  

Initial conclusion

This is not a correlated market.  The USD is Down and Crude is Up which is 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 Higher which is 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 is traded Lower. All of Europe is trading Lower as well.

Possible challenges to traders

• Import Prices m/m is out at 8:30 AM EST.  This is Major.

• FOMC Member Harker Speaks at 9 AM EST.  This is Major.

• Prelim UoM Consumer Sentiment is out at 10 AM EST.  This is Major.

• Prelim UoM Inflation Expectations is out at 10 AM 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 8:30 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 8:30 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 8:30 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 Short opportunity on the 10-year note, as a trader you could have netted 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

ZN - Dec 2023 - 10/12/23

S&P - Dec 2023 - 10/12/23

Bias

Yesterday we gave the markets an Upside bias as the USD was correlated with the indices and the Dow and S&P looked very strong Thursday morning. The markets however had other ideas as the Dow closed Lower by 174 points and the other indices lost ground as well.  Today we aren't dealing with a correlated market and our bias is Neutral.

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

Commentary

So yesterday marked the first session in five where the indices closed Lower and dropped.  Why?  Well, the CPI number did not come in as expected as they came in Higher and whereas some people think that's good; when it comes to CPI or PPI numbers, that isn't good because it means that we the ultimate consumer will be paying higher prices.  And no one wants that.  The Fed is probably salivating because this makes the notion of Higher interest rates easier for them.  They should cut it anyway because we are dealing not only with Higher prices, but we have a global conflict in the Middle East and the Fed should be mindful of that.  What do they think will happen with oil prices?  If this conflict involves more than a couple of nations, we could be looking at a Six Day War scenario. Only difference is that conflict only lasted 6 days in 1967, this one will be far longer.