The Week Ahead

I hope everyone had a good weekend.

I took a look at Friday's market action near the closing couple of hours when markets reveal their true nature as most op-ex contracts are closed by then, the market is released from the pin.

My feeling was (as of last week), that Friday was noise that didn't matter much, it would be this week where any real short squeeze could keep the psychological pressure on.

It's also the F_O_M_C meeting starting Tuesday and ending with their policy statement Wednesday at 2 p.m., I'll remind you of the F_E_D knee jerk reaction in the markets; this is by far the biggest event of the week. Short term the only hint we have was last week's unofficial mouthpiece, Hilsenrath from the WSJ spouting out some reassuring comments in an article, that the if the F_E_D begins to taper, it in no way means they will touch interest rates any time soon, the market reacted positively to the article.

The F_E_D may seek to cool the recent volatility which has been pretty astounding in the US, but Japan is out of control ad that volatility is spreading across Asia, starting to infect Europe and I think they'd rather it not hit US shoreds any more than it has.

I'll let the charts do the talking, my gut feeling is still this week is where we see a short squeeze beyond Thursday's very impressive 1-day move, all shorts being squeezed. As far as very near term action, there was improvement in 3C late Friday, I don't know however whether this was a start to be followed up on Monday which is what I'd usually think, or this is part of some accumulation of an early week pullback. There are some hints either way, ES isn't saying much about the very short term, but futures seem to have something to say about a short squeeze this week and there's ANOTHER, very clear technical price pattern, that may in fact be there to scare the shorts in to covering.

To the charts...

 This is a 60 min SPY chart (same pattern in ES and the SPX) showing (not a great trend line) a bullish Inverse H&S bottom or base. Volume is the most important thing in confirming one of these, but since no one does any way and I think its there more as a scare tactic than an actual true base, the idea being to scare shorts in to thinking any move above the white trendline is a breakout of this base and it may very well happen that way, then we prepare to cross the next bridge.

The point is though, just like 2 weeks ago almost to the day I said that I didn't believe all those market triangles were there by accident, well 2 weeks later almost to the day, I'm saying I don't think this price pattern is hear by coincidence or normal market flows.

 Another thing that would scare technical traders in the very short term if it happened would be a break out above this bullish consolidation/continuation "Bull Flag", it's almost perfect. I'd say a breakout of one would lead to a breakout of both and thus a short squeeze.

It's just difficult with Index futures to get a good feel on Monday right now, maybe by the morning they look different. The short Squeeze timeframes look all set as you'll see.

 At 1 p.m. Friday in all of the averages you'll see up to about 3 min positive divegrences through the rest of the day, this may continue Monday or we may get a pullback with positive divergent action, either way any pullback at this point is about as meaningless to me as Friday was overall as I made clear last week.

SPY 1 min

The SPY 3 min confirms the 1 min above, again around 1 p.m. as the op-ex pin would be winding down.

I could go on and on, but here's the 3 min IWM confirming the same Friday.

As for other assets, I saw positives in AAPL, Financials, Tech , the VXX had no clear signal, close to inline, but XIV which trades opposite the VXX and with the market did have a signal.

 XIV is positive on the 13th, but so were all risk assets, it's specifically Friday I'm interested in, this suggests VXX moves down and the market up, it's a 5 min timeframe so it's not for first thing Monday morning, but it is for a decent move in the next day or two (Mon-Tues.).

 HYG lost a lot of ground late Thursday with HY credit, but seemed to make some up late Friday 3 min HYG.

HYG is also leading the SPX all of Friday, so all in all, some more bullish action in credit.

High Yield credit which is less liquid and therefore moves first pretty much signaled Friday's market on Thursday, but look at the sharp move Higher in to the last hour Friday, it seems Credit all over is not SCREAMING, but is relatively strong which would make sense for the anticipated move.

Commodities also showed better relative performance than the SPX Friday.

Here are the Index Futures since opening Sunday...

 ES went positive late Friday as you see to the left with the averages, it's positive tonight, but it's a long night and this is only a 1 min chart, the morning will give us a better sense.

NQ leading tonight 1 min as well

This is what I'm really interested in though and screams "Short Squeeze, the 15 min Yen and USD charts, for the market to go up, the USD/JPY needs to go up and for that to happen the Yen needs to fall and the USD needs to rise, that pulls the market up, this is  just another indication that we get a strong short squeeze, I'm guessing before 2 p.m. Wednesday, perhaps the market keeps running with F_O_M_C as fuel from there.

The 15 min Yen is deeply leading negative suggesting a strong down trend this week in the Yen, that's 1 we need for a short squeeze.

The 15 min $USD is strongly leading positive, it has put in a rounding base that is the right size (the process of a reversal-not event) and is powerful enough alone to move the USD/JPY, but with the Yen above cooperating, I expect a strong move this week in the FX pair and that pair has been leading the market around by its nose.

So, very short term I'll have to see more tomorrow morning or Monday as early action unfolds, I'm not concerned in the least though as far as long and Call positions opened for this move.

Everything else seems to confirm what I expected last week, Friday would be a blah day that didn't do much (in fact it just consolidated in a bull flag) and this week they can keep constant psychological pressure on the bears, the price pattern IVH&S and bull flags are there. I feel very good about those positions.

Furthermore, I think Wall Street knows what the F_O_M_C is going to say at this meeting, it will probably be the minutes that are the bombshell, if I'm right, then underlying trade should confirm it clearly this week on Mon- through Wednesday before 2 p.m.

See you in the a.m.