A Quiet Open

Sunday night the FX and futures market opened quiet, but judging from late Friday's activity and the week ahead, I'd say this is the calm before a very interesting week.

Here's what the open in ES and  EUR/USD looked like Sunday night...

 S&P E mini futures opened slightly down from Friday's close and remain rather quiet thus far, however there is a 1 min positive divergence in ES which makes sense with the late Friday action I mentioned (not surprisingly the underlying action intensified during the last 30 minutes of trade when institutional money is most active in the market).

The Euro opened slightly down as well, thus far it remains subdued.

We do have an interesting week ahed of us with AAPL earnings after the market Tuesday, the F_O_M_C meeting concluding on Wednesday.

Here's next week's economic schedule...

Monday is quiet, from there the week gets interesting. I'm not even going to speculate on the F_O_M_C meeting, but as always, beware the F_E_D knee jerk effect.

Events in Europe are already taking an interesting turn, watch for yields in Italy and Spain as well as France as the French election heats up, it's looking like Sarkozy is in trouble from Sunday's first round of voting which may throw all of the EU's plans and commitments in to complete disarray should he lose, which is looking to be a distinct possibility.

As for the market, earlier last week we were looking for an options expiration SPY $140-ish pin, as explained in this post, the number of call contracts that increased hugely over a day or so, changed the pin and we didn't get the close I was hoping for, however the $.07 miss of $138 seems to make clear Wall Street was looking to pin a boat load of calls that came in Thursday from $138-$140.

I was hoping for a pin that looked more like this, keeping with the volatility/shakeout theme...

As was mentioned on April 10th before the bounce from below the SPX's 50 day moving average started, it simply doesn't make sense to have a bounce that doesn't shakeout the shorts and bring the longs in to the mix, a close like the one above would achieve that, we may still get that, it could be from AAPL earnings, optimism in to the F_O_M_C or even subtle wording changes in the policy statement.

Although the close on Friday seemed VERY deliberate (robbing $138 calls by a mere seven cents) and somewhat bearish, the underlying action late in the day seemed just as deliberate.

I noted the underlying tech action in this post Friday. Once again we saw a very fast moving market, although it was all in the underlying action.

Take a look at the Tech, Financial and Energy short (late Friday) and long term charts (significant deterioration continues).

 Energy sold off hard right on the open (Glad I closed the USO calls early in the a.m.). Energy looks to have the least amount of short term underlying momentum.

 The longer term 60 min Energy chart continues to lead negative.

 Financials showed a late day 2 min positive divergence it really grew in the last 15 minutes from an ambiguous jiggle to a leading positive divergence, it looks like smart money was very active in the last 30 minutes.


 a very long term daily chart of Financials shows them to be leading negative and in one of the worst positions since 2009 for just having had a big rally the last 5-6 months.


 Tech in the short term looks like the clear leader, we never did really get that strong tech rotation we expected. This is part of the reason I wanted to get some quick calls in AAPL, BIDU and PCLN late Friday.

Meanwhile the 60 min chart continues to reach for new leading negative lows and look at the price area in which this is happening.

As for the averages themselves, they too seem to confirm what Financials (to a lesser degree) and tech were hinting at late Friday (I included the very short term charts and the bigger picture longer term charts like the sectors above).

 DIA 2 min late Friday in the short term

 Longer term 60 min DIA, continuing to dig in to a deeper leading negative divergence.

 IWM 2 min with a positive short term intraday divergence, this looks to be one of the weaker short term divergences thus far

 The longer term 30 min which has been declining for some time now, just intensifying lately.

 QQQ 1 min late Friday

 QQQ 30 min showing increased downside momentum

 The SPY 2 min looks to be the strongest intraday positive divergence.

The sharp deterioration in the 15 min as well as the longer 30/60 min charts-even the daily is leading negative.

So it looks like the market is not done with volatility which I see no reason why it shouldn't continue to become more volatile as had been expected over a month ago and as we have seen.

I also find these divergences interesting considering the SPY closed right at the 50-day moving average, exactly where technical traders would be looking for support. What the market intends o doing with this, I haven't a clue at this point, but history being our guide, it probably won't turn out as traders expect.

I'll be looking earlier in the day tomorrow at the longer term risk asset layout since April 10th, which has been diverging except in Corp. Credit which has remained supportive of higher prices near term, just about everything else is digging in to deeper negative divergences. I suspect some sort of volatility induced trap to play out this week, I expected it Friday, but with Call options seeing a incredibly large increase, the market clearly intended on pinning the most number of contracts possible, again, the seven cent close below $138 in the SPY doesn't strike me as random.

Nearly all US economic indications are surprising to the downside, I have a new area for useful links on the right side of the site, just take a look at Citigroup's Economic Surprise Index.


While markets are just starting to open, we have some news beyond the French elections which will be more than just a change of leadership in France, likely a change is everything the EU has done to this point or plans on doing moving forward.

China's April HSBC Flash PMI came slightly stronger than expected but suggests manufacturing may remain in a contractionary state for the sixth month in a row. Remember that last month HSBC's Flash China PMI diverged badly with the actual Chinese print. Shortly we'll get China's take, however trivial this may seem, the HSBC reading and the Chinese readings have had a history of being similar, that was until about 3 months ago. While it may seem unrelated, there is a power struggle going on in China and the Chinese government's greatest fear is discontent among its own citizens. As Chinese standards of living have been moving higher, the possibility of a "not so soft landing" could have severe consequences and I don't think you can separate the Chinese economic data which has always been opaque (sort of like the early 2012 US data filled with seasonal adjustments, just multiples worse) from a quiet, but intense political clash unfolding in China; not to mention the many hints of citizen discontent and uprisings that just can't seem to be confirmed as China shuts down all media/bloggers who report on it.


The macro environment that is developing in the EU with Spain, Italy and France should be watched carefully as well as continuing trends in US economic data. The French elections could also have profound effects on Troika policy.


For now, we are still in the volatile, 1 day at a time environment where being nimble is key, but we are clearly seeing the market undergo a strong change in character. Without going in to breadth, Risk assets, Credit, rates, and everything else, a simple eyeball of the SPX should be enough to raise some alarm bells.

Have a great week, see you in a few hours.