US dollars: Jun ’22 USD is down to 101.860.
Energies: July 22 crude is up at 111.33.
Financial: The June 22 30-year bond is up 7 ticks and trading at 142.02.
Clues: The June 22 S&P 500 emini ES contract is 40 ticks higher and trading at 3987.75.
Gold: The Jun’22 Gold contract is trading lower at 1851.40. Gold is 11 ticks lower at its close.
It is not a correlated market. The dollar is down and crude is up, which is normal, but the 30-year bond is trading higher. Financial stocks should always correlate with the US dollar so that if the dollar is lower, bonds should follow and vice versa. The S&P is higher and Crude is trading higher, which is uncorrelated. Gold is trading lower, which is not correlated with the lower US dollar. I tend to believe that gold has an inverse relationship with the US dollar because when the US dollar goes down the value of gold tends to go up and vice versa. Think of it as a swing, when one is up, the other should be down. I’m pointing this out 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 mixed with half of the trade up and the other half down. Currently, all of Europe is trading higher.
Possible challenges for traders today
The preliminary GDP was released at 8:30 a.m. EST. It’s Major.
Preliminary GDP Price Index at 8:30 a.m. EST. It’s Major.
Unemployment claims are released at 8:30 a.m. EST. It’s Major.
Pending home sales end at 10:00 a.m. EST. It’s Major.
Natural gas storage is completed at 10:30 a.m. EST. It’s Major.
Traders, please note that we have changed the bond instrument from 30 years (ZB) to 10 years (ZN). They work exactly the same way.
We chose to shift gears a bit and show the 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 goal is to show an inverse correlation between the two instruments. Remember that it is compared to a seesaw, when the top goes up, the other must go down and vice versa.
Yesterday, the ZN made its move around 11:40 a.m. EST. The ZN topped around this time and the S&P rose soon after. If you look at the charts below, ZN gave a signal around 11:40 am EST and the S&P rose around the same time. Look at the charts below and you will see a pattern for both assets. The ZN peaked around 11:40 a.m. EST and the S&P moved higher soon after. These charts represent the latest version of MultiCharts and I changed the time period to a 15 minute chart for better display. This represented a short sale opportunity on the 10-year note, as a trader you could have gained around a dozen ticks per contract on this trade. Each tick is worth $15.625. Please note: the first month for ZN is now June 22. The S&P contract is also June 22. I changed the format to Heikin-Ashi to be more apparent and visible.
Charts courtesy of MultiCharts built on an AMP platform
ZN – June 2022 – 25/05/22
S&P – June 2022 – 05/25/22
Yesterday we gave the markets a neutral bias as we saw little evidence of market correlation on Wednesday morning. Markets turned higher and the Dow Jones closed up 192 points and the other indices also closed higher. Today we are not dealing with a correlated market and our bias is Neutral.
Could this change? Sure. Remember that anything can happen in a volatile market.
Compared to what we saw on Tuesday, the markets have decided to continue on the right path and go higher even though none of the economic news reports have exceeded or met expectations. This was a case of a dead cat bounce as the markets had sold off dramatically and sooner or later a short hedge kicks in. Today we have preliminary GDP, unemployment claims and pending home sales; who are all major and proven players in the market. Will these reports help drive the markets higher? Only time will tell.