Good Morning Traders,
Here’s the market snapshot as of 7:15 AM EST:
- USD: The Sep ’23 currency futures contract is down, trading at 104.910.
- Energies: Oct ’23 Crude Oil futures are on the rise, standing at 90.64.
- Financials: The Dec ’23 30-Year T-Bond futures are down by 9 ticks, currently at 118.10.
- Indices: The Sep ’23 S&P 500 E-mini ES contract has climbed 20 ticks and is trading at 4503.00.
- Gold: The Dec ’23 Gold futures contract is showing an upward trend, trading at 1947.90, 17 ticks higher than its previous close.
The current market conditions don’t exhibit strong correlations. The USD is down while Crude Oil is up, which is a typical pattern. However, the 30-year T-Bond is moving lower, which isn’t in sync with the usual inverse relationship it shares with the US dollar. The S&P 500 is on the rise, but Crude Oil is also moving higher, which isn’t a correlated move. Gold, on the other hand, is trading higher, aligning with the expected inverse relationship with the USD. This lack of correlation suggests potential market instability, and traders should exercise caution.
In Asia, most markets are trading lower, except for the Shanghai and Nikkei exchanges, which are showing gains. Currently, all of Europe is trading lower.
Potential Challenges for Traders Today
- NAHB Housing Market Index is scheduled for release at 10 AM EST, considered a major event.
- TIC Long-Term Purchases data will be released at 4 PM EST, though it’s not considered a major market mover.
We’ve shifted our focus from the 30-year bond (ZB) to the 10-year bond (ZN), as they exhibit similar behavior. We aim to highlight the reverse correlation between the 10-year bond (ZN) and the S&P futures contract. Like a seesaw, when one goes up, the other tends to go down, and vice versa.
Despite Friday’s expectations of an upside bias due to a weaker USD and bonds, the markets took an unexpected downturn, with the Dow dropping 289 points and other indices following suit. Today, we are dealing with an uncorrelated market, and our current bias is leaning toward the upside. However, in volatile markets, conditions can change rapidly, so traders should remain vigilant.
News broke on Thursday evening that the UAW (union for auto workers) was set to go on strike at midnight. While there was hope for a last-minute resolution, the strike did occur, leading to a market decline. Historically, auto manufacturing plays a pivotal role in the economy, and any disruption can have widespread effects. With no significant economic news today, the strike’s impact could persist, requiring close monitoring.
As a reminder, I don’t trade equities, but it’s essential to define what constitutes a strong earnings report in the equities market: a company must surpass its previous quarter’s earnings per share and provide positive forward guidance. Deviations from these metrics can negatively affect stock prices. Futures trading eliminates these concerns, offering a different set of advantages and challenges.
Crude Oil Update
Crude oil and the S&P are both showing gains, a departure from their typical inverse correlation. Crude oil usually experiences three significant price moves during the trading day (around 9 AM EST, 11 AM EST, and 2 PM EST when the market closes). Monitoring these moves can provide insights into market trends and anomalies.
In conclusion, the markets are exhibiting unusual behavior, emphasizing the importance of closely monitoring order flow and understanding market correlations to make informed trading decisions. Stay tuned for more insights in future editions.
Featured Image: Freepik @ pressmaster