So far ES, NQ and the EUR/USD have failed to impress much on opening trade as of about 7 p.m. EDT.
Both ES and NQ are slightly lower than where they were at 4 p.m. on Friday. ES has no interesting divergence as of yet, NQ is a bit positive on the intraday 1 min timeframe and there's nothing too interesting about the EUR/USD although we are VERY EARLY in overnight trade.
The big story is TREND #1, which we predicted to be a strong, volatile move up (I said several times likely stronger than we can anticipate), has made its move placing the S&P at levels last seen about 5 years ago. So far this move is good for about +4.54% over the last 4 days. This tend, compared to evidence we have of other trends to follow such as trend 2 (down) has always been expected to be the shorted lived of the two trends.
We were also looking for the SPX/SPY and other averages to take out local resistance as one just about every timeframe, before we can get a reversal we see these head fake moves as the open up demand and higher prices that Wall St. can sell or sell short in to and there are many other reasons you can find in my 2 part (of 3) article, Understanding the Head-Fae Move. Part 2 of the article can be found at the link and part 1 is linked at the top of part 2.
It is above this area that we want to look for the tell-tale signs of heavy distribution suggesting a near term reversal so we can take more substantive action.
The averages in the very near term ended Friday with the SPX and DIa looking ok, as if they might move a bit higher, while the QQQ and IWM didn't look very good at all.
Treasuries moved higher suggesting a flight to safety trade had already begun, basically money moving out of risk assets and in to the safety of treasuries, I believe that might be an accurate signal, but the big news of the week was the F_O_M_C minutes in which for the first time we had more than a single member openly questioning "Accommodative Policy" which may have intense and unexpected repercussions on treasuries, especially in the long end as the market now fears that QE3 may be shorter lived than thought and that the F_E_D may even move to normalize policy (meaning a rate hike) sooner than expected. This may cause a complete "Re-set" in the market as everything previously thought is now in the realm of uncertainty which is the place Wall Street hate more than any other. The effects of "Accommodative policy" and QE on the market since 2009 cannot be fully appreciated, they virtually were the market.
As for the week ahead, we'll be looking for signs of a reversal of trend 1 and seek to confirm trend 2, trend 2 may even be worse than originally expected due to the F_O_M_C minutes, but I want hard data, not guess work.
As for other indications from Friday other than Treasuries rallying with the market, equities rallied the last 30 mins to make it above that resistance level predicted as a break through target earlier in the day, however the bulk of other risk assets did not follow, this is almost the exact opposite of what we saw the Friday (12/28) just before the market popped the following Monday, we saw a late day sell-off in stocks (I expect they were being accumulated for the pop), while risk assets failed to move lower.
Among the risk assets not buying the market breakout above local resistance were High Yield Corporate Credit, High Yield Credit, the EUR/USD moved, but not nearly like equities, Rates weren't biting either and as I pointed out Friday the NYSE TICK showed strange weakness in to the move higher, it failed to make the higher high it should have. This is the kind of behavior we'd expect to see in to a head fake move, it doesn't mean the market can't move higher in the near term, that's part of the reason for a head fake move, but at least our prediction was right and the way risk assets acted in to the move also seems to confirm the reasoning behind our prediction was also correct.
Context will give you a quick and dirty example of what I'm talking about above...
The ES CONTEXT Risk Model did not move higher (green) as the ES (red) did, but I also confirmed this with our Leading Indicators.
Other than that, we are just going to following the market and letting the market's underlying trade tell us when and where.
However I cannot underscore enough how important the F_O_M_C minutes were this week, this was a total 180 degree turn from the F_E_D and we'll see if the market starts to make new pans, largely based on an earlier than expected F_E_D exit from policy.
Have a great night, I'll update you if anything big happens before tomorrow morning, otherwise I'll see you pre-market.
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