Pre-Market

Today is beyond light on economic data, it's pretty much non-existient, tomorrow it picks up a little bit and Alcoa will be kicking off earnings season tomorrow as well. One interesting thing we have this week that I think will be watched closely by the market, but ignored by most retail traders is the number of F_E_D speakers this week starting tomorrow with Lacker (Tuesday), Bullard, Kockerlakota, & George (Thursday), and Plosser (Friday).

I think few realize how important last week's release of the last F_O_M_C meeting's minutes actually were/are. Look at QE3, the market rallied for about a day and a half on the announcement of QE3, sure most expected it and it was priced in many will argue, but the market actually dropped after QE3 came out, adding treasuries to MBS is the same play from QE1 that did nothing for the market in 2008 until Treasuries were addd in 2009 to QE1, the same happened (from F_E_D policy) with QE3, it started as MBS and then they added Treasuries.

If you ask me why the market didn't rally, why gold didn't soar, it's not just because it was priced in which I believe is true as we had negative 3C signals going in to the announcement, but watching Bernie speak at the press conference, the question about onflation and how it may effect policy execution was the one that stopped the market in its tracks and that very minute as Bernie responded that they would do this and that "Within the CONTEXT OF PRICE STABILITY" told the market that QE3 was an adjustable program depending on inflation that it created.

WORSE YET, the F_E_D started changing their policy accommodation yard stick from a very stable date based one that the market could count on to an economic performance, which is almost real time and the market would have no idea how QE3 would change as economic reports changed. If there's one thing the market hate, it's uncertainty. So far the new policy yard stick has progressed from an idea to taking actual shape and the market is not keen on not knowing for sure on what date rates will change, whether a POMO may be decreased or cancelled because of a good economic report, etc. I think the F_E_D is doing the right thing, but when you have a rally from 2009 built on a QE/F_E_D liquidity House of Cards, right or wrong, the market is going to be cautious so these speeches from F_E_D members this week will be very important in my view.

As for the market overnight, it looks like 3C may have sniffed something out in the EUR/USD with last night's 5 min positive divergence...

Other than the opening Sunday night that was much higher and told us a Monday morning pop in the market was very likely, the pair has diverged from the market ever since, which is not good for the market, yet the market has maintained in a range and broke above it late Friday as we predicted, which is just norma behavior that is often part of a head -fake before a reversal. Whether this was because of year end Euro-Repatriation for EU banks closing books or something else really doesn't mater at this point, what does is it seems the Euro is going to make a move to the upside, the pair and the SPX will meet at some reversion to the mean, now the question is whether the market makes its way down to a rising Euro or gets a temporary boost?

A closer view of the pair shows some pre-market strength.

So far ES is down around 5-5.5 points from Friday's 4 p.m. level and hasn't moved with the Euro, that often changes on the open. We'll see what opening indications look like.