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A Clash of Titans 2


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A Clash of Titans 2

Good Morning Traders,

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

US Dollar: Dec '20 USD Up at 92.860.

Energies: Nov'20 Crude is Up at 40.20.

Financials: The Dec '20 30 year bond is Up 3 ticks and trading at 173.06.

Indices: The Dec S&P 500 emini ES contract is 40 ticks Lower and trading at 3423.50.

Gold: The Dec'20 Gold contract is trading Down at 1919.50 Gold is 100 ticks Lower than its close.

Initial Conclusion

This is not a correlated market. The dollar is Up+ and Crude is Up+ 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 and Crude is trading Higher which is 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.

Asia is trading mainly Lower with the exception of the Hang Seng and Singapore exchanges. All of Europe is trading Lower at this time.

Possible Challenges To Traders Today:

  • Unemployment Claims is out at 8:30 AM EST. This is Major.
  • CB Leading Index m/mis out at 10 AM EST. This is Major.
  • Existing Home Sales is out at 10 AM EST. Tis is Major.
  • Natural Gas Storage is out at 10:30 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 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 9 AM EST. The ZN hit a Low at around that time and the S&P moved Lower. If you look at the charts below ZN gave a signal at around 9 AM EST and the S&P moved Lower 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 9 AM EST and the S&P was moving Lower 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 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 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 TYAZ20Oct211111111111111111111111111111111111111-640x360.png
ZN- Dec 2020- 10/21/20
This image has an empty alt attribute; its file name is SPOct21111111111111111111111111111111111111-640x360.png
S&P - Dec 2020 - 10/21/20

Bias

Yesterday we gave the markets a Neutral bias for fundamental reasons meaning that the markets could go anywhere and often does. The Dow dropped 98 points and the other indices lost ground 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

So later this evening we will see Round 2 of the Presidential Debates. I don't count last week's separate Town Hall meetings as they weren't speaking to each other so from my opinion it doesn't really count. This time around they will mute the candidates mics to prevent them from interrupting as they did last time around. Personally however I have no doubt that President Trump won't let a muted mic stop him, he'll talk over the microphone and will find a way to interrupt. Right now he is conjuring up dirt on Joe Biden so Joe needs to be prepared and has ordered Attorney General Barr to launch an investigation on Biden even though there's no evidence that Joe Biden did anything wrong. Mr. President in case no one told you you need evidence of wrongdoing before you can press charges and oh BTW the burden of proof lies with the accuser, not the accused. Trump wants to make Joe Biden look as though there was some wrongdoing and create doubt in the minds of voters. This is what Trump does. I call it the school yard bully routine and there's only one way to cure that problem. Beat the hell out of the bully.

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 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 Higher and the S&P is Lower. 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 40.46 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 Higher

Crude oil is trading Higher and the S&P is Lower. 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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