Opening Trade

So far opening trade in futures and FX is not earth-shatteringly exciting and as always, there's a lot that can happen overnight with Europe opening in several hours, the US pre-market and of course the big momentum move on the US open, but so far this is what the markets look like...

 ES (S&P mini Futures) are down about 5.5 points from Friday's close thus far with a negative intraday/overnight divergence forming so far.

 The EUR/USD showing last weekend's open and today's open, still just below the psychologically important $1.30 level.

A closer view of the pair, with a slight gap down and a bit below Friday's close.

All in all, not much to get too excited about yet, but we still have a long overnight session.

Pick Your Poison, Egypt offers a new choice

Last week I posted a number of market updates in which in which I said it looked like the invisible hand was at work in the market certainly on Wednesday (when many Wall St. humans would already have started their long weekend trip to the Hamptons) and again on Friday during the half day session.

It was my view that this proactive form of interference in the market was to either allow the headlines in the news for the masses who do not follow the market to either read, "Market has best week since XYX" or to simply avoid, "Market sees a "X"% decline" on the critical days before and on Black Friday as consumers need as much positive sentiment as can be provided to keep Black Friday sales from coming in a total flop, every little bit of sentiment counts.

However, from the same market updates it was my opinion that in the near term trade (as in early this week) the market would find one of many potential excuses to latch on to to send the market lower at least early in the week. In my view this truthfully has nothing to do with any of the potential excuses that would be already available such as the break-down in talks over Greece between the Euro-Group and IMF (or really any problem in the EU you want to pick) or perhaps something that develops over the weekend. This is simply the means and it's not important as to which is picked as the end seemed to me to already be set, a decline in the market early this week (thus some small short positions taken up Friday for near term trade like AAPL Puts or FAZ calls-both of which are shorter term trading tools in my view, but the point is to take what the market gives).

We have some new choices for the market to pick this week that have developed (some quite predictably) such as the situation in Egypt that is being called, Morsi's reach for Pharaoh status, which has sent the Egyptian stock market plunging nearly 10% today as anti-Morsi forces unite and protest, facing the well organized Muslim Brotherhood pro-Morsi (Islamofacism) faction. Morsi has issued an edict that exempted his decrees from judicial review, he says this will only be in effect until a new constitution is ratified; judges are rebelling and it's not a simple situation as Morsi says the judges impede the ratification of a new constitution and represent the "Old Guard" put in place by Mubarak and the military. Morsi's timing is interesting in that he announces this a day after brokering an Israeli / Hamas cease-fire deal, I doubt the timing is coincidental.

You may recall in our coverage of the removal of Mubarak, who was actually removed by the military complex that has chosen each of Egypt's leaders since Nasser and did not appreciate Mubarak grooming his son to replace him and thereby shunning the military who had long controlled the country; I said removing a leader or dictator is the easy part, putting a new, sustainable government in place is the hard part. Look at Iraq or Afghanistan nearly a decade later in which the "elected" leaders can barely project power outside their respective capitals. There's a reason dictators stay in power so long, they are dumb brutes that are easily controlled; Saddam Hussein was one of the CIA's greatest assets until Saddam made the mistake of biting the hand that allowed him to stay in power. However in these countries which have borders that were arbitrarily drawn up in the mid 20th century and place factions that are mortal enemies within the same borders, only a harsh, heavy handed dictator can keep a country like that functioning. Morsi unfortunately may be an exception to the rule and example of Iraq and Afghanistan as he's looking more and more like one of those heavy handed dictators. You may even recall back during Mubarak's last days we talked about how the Muslim Brotherhood was sneaking allies and assets in to the country and was already one of the most weel organized factions that would be a likely challenger to the military complex way back when and look at them today, Morsi is running the country and seeking powers that Mubarak couldn't imagine, even with the military on his side.

I digress, this is just an example of one of the many things the market may choose in the coming week to fulfill what was already looking like a near term impending move lower (pullback or something worse) which can be seen in these charts from last week.

 SPY 3 min goes from positive to negative the last 2 days of last week.


QQQ 5 min does the same.

We have to keep these charts in perspective, they are short term 3 and 5 min charts (while the 5 min is a respectable timeframe beyond intraday signals, it still is a rather small divergence in the larger picture) and unless they start effecting longer timeframes, any weakness early  this week will likely be short lived no matter how intense it may seem at the time.

As for the more important, longer term trends that have developed since we identified the end of the last cycle in mid October, they remain extremely strong. Short term I'm not willing to take a very big bet against the market and that is why all long positions that were existing remain open and only 2 bearish positions of a more speculative nature were taken up Friday to try to take advantage of a possible market pullback, after all we want to take what the market offers (both using options which as you know I consider to be a very short term tool-often a day to several days).

The bigger bullish picture for the next foreseeable trend remains firmly intact...

 If there's an average that is still positive, but the laggard of the 4 main averages we follow, it's the SPY, but even here on a 10 minute chart there's NO DAMAGE from last week's last two days, suggesting the negative divergences above were not all that powerful as they didn't effect a 10 min chart in the SPY.  This doesn't mean they can't move the market early this week, but I wouldn't view any such move as anything more than a tactical opportunity, not a strategic shift.

 The QQQ 30 min chart (a significant timeframe) shows the end of the last cycle in mid-October and the improving chart since, from a strong relative positive divergence as prices move lower (and offer supply to be accumulated)  to an even stronger leading positive divergence in the white box.

The DIA 60 min chart, one of the most influential timeframes we use also shows the end of the last cycle in Mid-October and a significant and very strong positive divergence in the DIA that is also leading to new highs on this chart. So while price may pullback or look ugly early in the week, I'd be looking at any such moves as tactical opportunities to further your strategic outlook.

We'll soon see what the initial market indications look like tonight.