tastytrade logo
gold and crude oil market indicator

Feb 25, 2022

Dow futures shed 800 points, while NASDAQ, Oil & Gold fall slightly

By:Ryan Sullivan

Thursday marked a three-hundred and thirty-five-day low in the E-Mini Dow Jones Futures (/YM), down 12.67% from its 36,832-point high on January 5th, 2022. The E-Mini Dow Futures contract saw an 885-point free fall on Thursday followed by a 1,038-point rally that held above 32,975 for the remainder of the session. Friday’s morning session continues to show strength.

The strong movement we have experienced in Dow Futures over the last twelve weeks has been matched by the NASDAQ E-Mini Futures (/NQ), Light Crude Oil Futures (/CL), and Gold Futures (/GC).

Fig. 1: Three-month percent change.

How does NASDAQ and Dow futures compare?

Dialing in, we see the NASDAQ E-Mini Futures (/NQ) have moved lower in a similarly aggressive manner, compared to E-Mini Dow Futures, over the same period. However, the NASDAQ E-Mini Futures made its presence known sooner than the Dow Futures, putting in its current high of 16,767.50 on November 22nd, 2021, then falling 22.23% to 13,025.75 during Thursday’s session.

Thursday's low in the NASDAQ Futures marks a new low for its last 288 days (about 9 and a half months) of trading. The velocity of the NASDAQ Futures price movement over the last 12 weeks, compared to Dow Futures, allows us to infer that the components of NASDAQ Futures contract react sooner and more aggressively than the components of the Dow Futures contract. This can be understood when looking at the components of both the Dow and NASDAQ Futures and seeing that the components of the NASDAQ Futures contract are fewer in number and more volatile in general.

Gold and crude oil futures hit multi-year highs

Light Crude Oil Futures (/CL) recorded a 2,741 day (about 7 and a half years) high of $100.54 during Thursday’s session. After breaking the $100 mark during Thursday’s session, it quickly sold off to the low 90’s. Thursday’s session high was 31.73% off the all-time Light Crude Oil Futures high of $147.27 in July of 2008. The last three weeks of price action in Light Crude Oil Futures has moved into a significant range between $88.45 and $111.82, which was established in late 2007.

Gold Futures Remain on the Upside 

Gold Futures (/GC) has experienced a less intense but still significant rally over the same last three-month period of trading when compared to Light Crude Oil Futures. Gold Futures marked its high more recently than Light Crude Oil Futures, on August 7th, 2020. Thursday’s Gold Futures session closed the day at $1926.30, 7.8% off its high in 2020.

The price of Light Crude Oil Futures and Gold Futures behaves differently to macro stimuli than indices that are comprised of U.S. equities do because, Gold and Oil have an uncorrelated use case that is valuable in separate ways compared to equities. Simply put, Oil and Gold are commodities while the Dow and NASDAQ Futures are comprised of equity components.

The last 24 months of price action in the Dow, NASDAQ, Gold, and Light Crude Oil Futures appear to have correlations that remain consistent over time. It is important in volatile market situations, such as the market conditions we have experienced in the last 24 months, to maintain perspective on these products and understand that these correlations do not have to hold true, and often do not, when subjected to outlier market stressors.

Fig. 2: Three-month correlations

What Does the Near Future Have in Store for These Futures Products and Their Correlations?

The matrix above shows a strong positive correlation between Dow and NASDAQ Futures and a low to slightly negative correlation between the Dow/NASDAQ and Oil/Gold Futures. This tells us that the Dow and NASDAQ Futures have positively moved together over the last three months, while Oil and Gold are unlikely to move in a significantly correlated way to Dow and NASDAQ Futures movements.

What’s the outlook for oil and gold futures?

It is entirely possible that Light Crude Oil Futures continues its rise and breaks through the significant $100 mark with strength and does not stop. It could blow through that important price range of $88 to $111 and establish a price range that is higher, with upward resistance that has yet to be fully discovered. The same may ring true for Gold Futures, which has the potential to set all-time highs in the near future.

If that does happen for Gold and Oil, we must be willing to accept that Dow and NASDAQ Futures do not have to capitulate. It is possible that Dow and NASDAQ Futures could take on a more negatively correlated relationship to Gold and Oil Futures, as Gold and Oil react to global news and supply chain concerns.

Open an account now with tastyworks to trade Dow, NASDAQ Oil and Gold futures

Do not let any market or personal bias affect sound assumptions that can be made on trading instruments, such as the current correlations that exist between Dow, NASDAQ, Oil and Gold Futures. If correlations exist that lead to assumed directional assumptions, do not let that assumption keep sound reasoning from allowing a trade to be placed that conflicts with those correlations.

If a product moves in one direction and a historical correlation says another product should or should not react in a certain way, become comfortable letting go of that assumption.

tastyworks, Inc. and tastytrade, Inc. are separate but affiliated companies.

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure for Futures and Options found on tastyworks.com. 

tastytrade is a trademark/servicemark owned by tastytrade.

tastyworks, Inc. ("tastyworks") is a registered broker-dealer and member of FINRA, NFA and SIPC. tastyworks offers self-directed brokerage accounts to its customers. tastyworks does not give financial or trading advice nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastyworks’ systems, services or products. tastyworks is a wholly owned subsidiary of tastytrade, Inc (“tastytrade”).

tastyworks, Inc. (“tastyworks”) has entered into a Marketing Agreement with tastytrade (“Marketing Agent”) whereby tastyworks pays compensation to Marketing Agent to recommend tastyworks’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastyworks. tastytrade is the parent company of tastyworks. tastyworks and Marketing Agent are separate entities with their own products and services. tastytrade has different privacy policies than tastyworks.

Quiet Foundation, Inc. (“Quiet Foundation”) is a wholly-owned subsidiary of tastytrade The information on quietfoundation.com is intended for U.S. residents only. All investing involves the risk of loss. Past performance is not a guarantee of future results. Quiet Foundation does not make suitability determinations, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of Quiet Foundation’s systems, services or products.

© copyright 2013 – 2022 tastytrade. All Rights Reserved. Applicable portions of the Terms of use on tastytrade.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastytrade’s podcasts as necessary to view for personal use.