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Downside Bias = Downside Day


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Downside Bias = Downside Day

Good Morning Traders,

As of this writing 5:50 AM EST, heres what we see:

US Dollar: Dec '20 USD Down at 93.705.

Energies: Nov'20 Crude is Down at 40.80.

Financials: The Dec '20 30 year bond is Up 5 ticks and trading at 175.13.

Indices: The Dec S&P 500 emini ES contract is 4 ticks Lower and trading at 3474.50.

Gold: The Dec'20 Gold contract is trading Up at 1912.50 Gold is 35 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 Higher. 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 Lower (fractionally) and Crude is trading Lower which is not 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 traded Higher with the exception of the Japanese Nikkei exchange which traded Lower. All of Europe is trading Higher at this time with the exception of the Spanish IBEX exchange which is Lower at this time.

Possible Challenges To Traders Today:

  • Core Retail Sales m/mis out at 8:30 AM EST. This is Major.
  • Retail Sales is out at 8:30 AM EST. This is Major.
  • Capacity Utilization Rate is out at 9:15 AM EST. Major.
  • Industrial Production m/m is out at 9:15 AM EST. Major.
  • Prelim UoM Consumer Sentiment is out at 10 AM EST. This is Major.
  • Prelim UoM Inflation Expectations is out at 10 AM EST. Major.
  • Business Inventories m/m at 10 AM EST. This is Major.
  • FOMC Member Quarles Speaks at 11 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 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 note, as a trader you could have netted about 20 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.

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ZN- Dec 2020- 10/15/20
This image has an empty alt attribute; its file name is SPOct151111111111111111111111111111-640x360.png
S&P - Dec 2020 - 10/15/20

Bias

Yesterday we gave the markets a Downside bias as the USD and the Bonds were trading Higher yesterday morning and this is indicative of a Downside day. The markets didn't disappoint as the Dow dropped 20 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

Yesterday we had economic news that wasn't exactly stellar and I think the markets took that as a sign that things are not as rosy as people think. We had initial Unemployment claims come in at 900,000 and this is not going in the right direction. Empire State Manufacturing is Down. These aren't signs that the economy is getting better. I've long said that once Corporate America sees how much money they're saving in labor costs, they will become very creative in terms of not hiring and bringing those jobs back. So this notion of a V shaped, U shaped recovery is nil at best.

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 Neutral. 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 November crude dropped to a low of 40.74 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 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 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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