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Who Won the Debate?


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Who Won the Debate?

Good Morning Traders,

As of this writing 5:30 AM EST, heres what we see:

US Dollar: Dec '20 USD Down at 93.913.

Energies: Nov'20 Crude is Down at 40.90.

Financials: The Dec '20 30 year bond is Down 16 ticks and trading at 175.25.

Indices: The Dec S&P 500 emini ES contract is 98 ticks Higher and trading at 3376.50.

Gold: The Dec'20 Gold contract is trading Up at 1899.30 Gold is 38 ticks Higher than its close.

Initial Conclusion

This is not a correlated market. The dollar is Down- and Crude is Down- which is not normal and the 30 year Bond is trading Lower. The Financials should always correlate with the US dollar such that if the dollar is lower then bonds should follow and vice-versa. The S&P is Higher and Crude is trading Lower 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.

Asia is trading mainly Higher with the Shanghai and Nikkei exchanges trading Lower. Currently all of Europe is trading Higher.

Possible Challenges To Traders Today:

  • Challenger Job Cuts y/y is out at 7:30 AM EST. Major.
  • Core PCE Price Index is out at 8:30 AM EST. Major.
  • Personal Spending m/mis out at 8:30 AM EST. Major.
  • Personal Income m/m is out at 8:30 AM EST. Major.
  • Unemployment Claims are out at 8:30 AM EST. Major.
  • Final Manufacturing PMI is out at 9:45 AM EST. Major
  • ISM Manufacturing PMI is out at 10 AM EST. Major.
  • Construction Spending is out at 10 AM EST. This is Major.
  • ISM Manufacturing Prices is out at 10 AM EST. Major.
  • Wards Total Vehicle Sales - All Day By Brand
  • Natural Gas Storage is out at 10:30 AM EST. Major.
  • FOMC Member Williams Speaks at 11 AM EST. Major.
  • FOMC Member Bowman Speaks at 3 PM 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 are having technical difficulties bringing up the 30 hence the 10 year product.

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 liken to a seesaw, when up goes up the other should go down and vice versa.

Yesterday the ZN made it's move at around 7:30 AM EST. The ZN hit a High at around that time and the S&P moved Higher. If you look at the charts below ZN gave a signal at around 7:30 AM EST and the S&P moved Higher at around the same time. Look at the charts below and you'll see a pattern for both assets. ZN hit a High at around 7:30 AM EST and the S&P was moving Higher shortly thereafter. 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 Shorting opportunity on the 10 year bond, as a trader you could have netted 20 plus ticks per contract on this trade. Each tick is worth $15.625. Please note: the front month for the ZN is now Dec '20. The S&P contract is also Dec '20 as well. I've changed the format to Renko bars such that it may be more apparent and visible.

Charts Courtesy of MultiCharts built on an AMP platformClick on an image to enlarge it.

This image has an empty alt attribute; its file name is TYAZ20Sept301111111111-640x360.png
ZN- Dec 2020- 9/30/20
This image has an empty alt attribute; its file name is SPSept30111111111-640x360.png
S&P - Dec 2020 - 9/30/20

Bias

Yesterday we gave the markets a Downside bias as we didn't see much evidence in terms of correlation. The markets however had other ideas as the Dow advanced 329 points and the other indices gained ground as well. Today we aren't dealing with a correlated market and our bias is to the Upside.

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

Commentary

So Tuesday evening we witnessed the first of three presidential debates and just about all the news media covering the event came to the same conclusion namely that is was the worst presidential debate since those debates started in 1960 with Kennedy versus Nixon. Joe Biden appeared very composed as though he knew what Trump would do. Trump as predicted played the schoolyard bully to a tee. The president did nothing but interrupt, be rude (not only to Joe Biden but also the moderator Chris Wallace). Joe Biden did get angry and interrupt on occasion but it was few and far between. The global markets traded mainly lower, especially Europe which traded complely to the downside. Our take is when the Smart Money saw the global markets drop they went the opposite direction. Ironically following Market Correlation rules....

On Thursday April 5 (2018) we had the honor and privilege to be interviewed by David Lincoln on his You Tube channel. David is a floor trader for the options markets. If you listen to this interview, you will enjoy it. To view the interview go to:

ttps://youtu.be/U7gh9oanjIE

Just so you understand, Market Correlation is Market Direction. It attempts to determine the market direction for that day and it does so by using a unique set of tools. In fact TradersLog published an article on this subject that can be viewed at:http://www.traderslog.com/market-correlation-is-market-direction/

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 is 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 Upside. 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 Higher. This is normal. Crude and the markets are now reverse correlated such that when the markets are rising, crude drops and vice-versa. Yesterday November crude dropped to a low of 38.68. 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 November. Both Russia and Saudi Arabia have agreed to keep production cuts in place for the next 6 - 9 months. This could artificially increase the price of crude at the pump by keeping supply low. However given the coronavirus situation prices are currently Lower because demand is Lower. Fewer people working, fewer people using their cars to get to work as many are working from home, etc. Please be advised that the new contract month for crude is now November.

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 Higher. This is 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 atwww.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, youll also receive our daily Market Bias video that is only available to subscribers.



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About the author


Nick Mastrandrea is the author of Market Tea Leaves. Market Tea Leaves is a free, daily newsletter that discuses and teaches market correlation. Market Tea Leaves is published daily, pre-market in the United States and can be viewed at www.markettealeaves.com Feel free to visit and subscribe.

Nick has traded various financial instruments in his career but is currently  focused on the Futures markets. At one time Nick held a NASD Series 7 license and currently holds a Life, Health and Variable Authority.  He resides in the Princeton area of New Jersey and can be reached at nmastran@verizon.net or Skype: nmastran

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