The Week Ahead

As usual there have been numerous news and fundamental events throughout the world, perhaps none more potentially "immediately" dangerous than the Muslim Brotherhood losing their grip on Egypt in what was a predictable eventual outcome, no one comes to power in Egypt without the military putting them there, even as Mubarak knew this fact, the decades of unchallenged rule gave him the mistaken confidence that things had changed as he groomed his son to take over the reigns of leadership; it didn't take long until the military forcibly removed him from power, brilliantly under the guise of standing up for the people and democracy. However when that "Democracy" takes a turn in any direction other than the military's prescribed, inevitable outcomes, you see what happens: Morsi, the new constitution and parliament are all scrapped, virtually erasing any sign of Morsi's presidency, influence on the new constitution or even any MB politicians riding his coattails in to parliamentary positions.

Much like a Cairo court ruled after Mubarak was disposed, to remove public images of Mubarak and his family from streets, libraries or any other public institutions, it seems the military is engaged in doing the same with Morsi, a tradition that dates back thousands of years in  Egypt for those who crossed the rubicon of what was and was not acceptable. Take the Queen ruler of Egypt, Hatshepsut (nearly 2500 years ago) who is considered by Egyptologists as one of the most successful pharaohs and certainly the most successful of the 3 women who ruled. Hatshepsut was a remarkably successful politician, one of the most prolific builders of ancient Egypt, and a cunning and adept ruler, despite being a woman, yet was nearly completely erased from history until her story started to become known early in the 20th century. 

Whether it was  Thutmose III or his son, Amenhotep II doesn't really matter, however the lengths they went to were far beyond simply defacing statues and chiseling her name from cartouches, statues were removed, smashed and buried in pits. There was even an attempt to build walls around her obelisks as well as many other incidents that literally nearly removed this exceptionally important ruler from Egyptian history, so much so it wasn't until 1902, nearly 3500 years later that her tomb and story were rediscovered. 

It seems the Muslim Brotherhood, is not quite so content as to slip in to Egypt's past as a footnote although this wouldn't be the first time the movement has been suppressed in many Arab states. Pro-Mosi factions have regrouped after a stunning and complete defeat last week and are now marching across numerous cities in Egypt, while the anti-Morsi groups do the same, so far 1400 people have been injured in clashes as the two marches converge at pivotal and symbolic locations. While the anti-Morsi faction has the loyalty of the military (or truth in fact, the military has the loyalty of the anti-Morsi faction), the Muslim Brotherhood is one of the largest Islamic movements, they claim responsibility for the installation of Hamas as a ruling party and are blamed for attempted and real political assassinations. The point being, army backing or not, the U.S. and allies can attest to the difficulty in fighting a non-conventional conflict with religious ideologues. In fact the removal of Mosi in my view not only gives the Muslim Brotherhood the anger and support of many who may not have otherwise taken their side, it also "unleashes" the less political wing to do as it pleases without restraint from the political wing.

The point I'm trying to make is, Egypt has to be one of the biggest prizes in the Middle East and the Muslim Brotherhood has the stomach for the violence and now they have the Islamic world's outrage at what will be seen as the removal of a democratically elected president by remnants of what they consider to be a corrupt regime (both Mubarak's and the military's). I wrote a lot about this at the time, just before Mubarak was removed from power, there had been many reports of Hamas and other radicals crossing in to Egypt to start the early organization of a political takeover of Egypt - THEY AREN'T GOING TO SLIP QUIETLY IN TO THE NIGHT.

FUTURES...
As far as futures go as they open for the new week, thus far I see very little change from the previous week, meaning they look like a significant decline is coming before a stronger upside move continues (although this is certainly a dynamic and fluid market - we can only make judgements with what we know at the moment ).

Other than what this week's clashes may mean for energy, this is what Index futures look like tonight.

 The ES 1 min futures, especially on a Sunday night when few markets are open, usually are not much of an indication to me, as I say, "It's a long night", however the trends among the 1 min charts do stand out more than the normal 1 min Index futures charts and they don't look great.

 NQ or NASDAQ 100 1 min futures

TF or Russell 2000 1 min futures.

This continues on the more reliable 5 min charts such as Es above.

NQ 5 min

and TF 5 min.

The trends after that are little changed except in one area, these are the charts that have suggested a fairly nasty move down is the next leg... 

 ES 15 mins is seen as negative, unfortunately I don't have much history on these charts, but the divergence is worse than it appears here.

The change is in the 30 min charts, these were the transition between the near term move down and the expected return of a larger move up, the dividing wall between the 5/15 min negatives and the 60 min leading positive charts. HOWEVER, the 30 min chart is now starting to show some downward bias rather than the "In Line" status you can see they have been showing for some time.

The 60 min charts are still calling for a larger move after a leg down, to the upside.

Oddly the CONTEXT model for ES is very bullish...

That's about a 22 point positive differential, but again very few markets that are part of the modeling of CONTEXT are open, and CONTEXT does adjust and change the weighting of their model-usually in the morning as we have seen numerous times before.

Some other interesting signals in futures are that of the 10 year benchmark US Treasuries as well as the 30 year (TLT represents the 30 year and is also 1 of 3 arbitrage assets the SPY arbitrage is modeled around) thus making it an obvious algo arbitrage/correlation asset.

The positive divergences in the different timeframes of the 10 year and 30 year chart would suggest accumulation and both moving to the upside, which is a "Flight to Safety" move, suggesting concern about market downside. *Interestingly though, the 60 min charts are perfectly in line, confirming the larger upside move the Index future charts suggest on the 60 min charts.

 10 year 5 min chart

10- year 15 min chart

10 year 30 min chart.

30 year 5 min chart

30-year 30 min chart

These are the Nikkei 3C charts, as you see they aren't so different fro our own Index futures in the near term meaning the direction of the market's next leg.

 Nikkei 5 min negative divergence suggests  the Nikkei is on the edge of a sizable downside move 

As does the longer term 30 min trend showing the positive divergence as the Nikkei was ready to bounce (to the left).

Even though liquidity was low and human traders were few and far in between as well as it being an op-ex Friday with all of the unique behavior, the Credit charts are clear there has been some significant short term deterioration.

 The HYG (High Yield Corp. Credit (and second SPY arbitrage asset) clearly diverged negatively from the SPX friday.

I think the 5 min chart makes it more clear, both the divergence and the importance of the leadership of credit.

High Yield and Junk Credit behaved the same way Friday and look almost exactly the same as HYG above.

None of the "Risk-on" currencies were of any help Friday at all and if anything showed they will not support the market, in fact they look the opposite (if they only had the same power they use to have).

Yields and the SPX have reached short term reversion to the mean, in fact it seemed almost as if Friday's treasury moves were specifically moving to fulfill this destiny that seems to always play-ouy (of course it only seemed that way, but something was obviously going on).

Despite the strength in oil, commodities also fell out with the SPX.

Also sentiment fall out with the SPX, here's one of our sentiment indicators...



When an indicator like this tracks the SPX so well and then has a sudden and strong shift, it just gives me more confidence in the indicator's reliability.

You may recall at the start of last week I considered not opening any positions because of the nature of the market's liquidity due to the holiday in the middle of the week. Several positions were opened and closed, but as was probably obvious from positions opened Thursday and Friday, I have a pretty strong feeling we'll see that downside move this week, likely early in the week.

Most of the market averages and important assets closed Friday almost perfectly in line on 1 min charts, after that is a different story. In a market with less volatility and fewer fundamental events I'd say that the open Monday will continue roughly in line with Friday's close just because of where the 1 min chart closed, it typically forecasts early trade the next trading day so although volatility and fundamental events are becoming more important over weekends to short term trade, I'd expect the market to behave in similar fashion to the way it ended Friday, at least early on shortly after the open.

Most everything else though as you see indicates the next leg (which I had doubts about it starting last week because of the chopped up trading week and low volatility/few human traders) still looks solidly down.