Markets end year with a bang [Video]

US Dollar: Dec '20 USD Down at 89.430.

Energies: Jan'21 Crude is Up at 49.01.

Financials: The Mar '21 30 year bond is Down 16 ticks and trading at 172.22.

Indices: The Mar'21 S&P 500 emini ES contract is 80 tick Higher and trading at 3768.75. 

Gold: The Feb'21 Gold contract is trading Up at 1934.20. Gold is 392 ticks Higher than its close.

Initial Conclusion

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

Asia is trading Higher with the exception of the Japanese Nikkei exchange. All of Europe is trading Higher at this time.

Possible Challenges To Traders Today

• Final Manufacturing PMI is out at 9:45 AM EST.  This is Major.

• Construction Spending is out at 10 AM EST.  This is Major.

• FOMC Member Bostic Speaks at 10 AM EST.  This is Major.

• FOMC Member Evans Speaks at 10 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.

Last Thursday the ZN made it's move at around 8 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 8 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 8 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 Mar '21.  The S&P contract is now March '21.  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 platform

ZN - Mar 2021 - 12/31/20

S&P - Mar 2021 - 12/31/20

Bias

Last Thursday we gave the markets a Neutral bias as we didn't see much in the way of correlation last Thursday morning.  The markets migrated to the upside and the Dow closed higher by 197 points.  The other indices closed Higher 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 the markets ended the year on a positive note with the Dow closing Higher by 197 points and the other indices gained ground as well.  No one can deny that 2020 has been a challenging year for the markets with both a pandemic to deal with as well as a presidential election which is still being contested.  In spite of all this the markets gained ground this past year.  The question is what will the markets do going forward?  While no one can accurately predict the future if the current trends hold we will advancement in 2021.  The reason we are suggesting this is the COVID 10 vaccines are being distributed (although not at the rate of 20 million as per El Presidente  Trump) but they do exist and going forward the Federal government will take a more hands on approach as opposed to passing the buck to the states.  As things become more "normalized" we should see or start to see a return to more normal trends.  But as in all things, only time will tell...