The Week Ahead and Friday (?)

Almost 2 weeks ago when the F_O_M_C seemed to wipe out and ignore everything they had said over the last year by totally ignoring the QE taper, the first question asked here was, "What is the F_E_D so scared of?".

Tonight it would "seem" we have our answer, perhaps the F_E_D's memory of late August 2011 is still fresh in their memories, for Wolf members, that was a memorable time for us too, over the next two months a "Trading" portfolio using 2x leveraged ETFs made +85% as we caught EVERY move up and down to nearly double a trading portfolio in about 2 months.

The Dow and S&P looked like this in 2011, this was the time of the last Debt Ceiling debate, which was ultimately settled, but came with the first ever S&P rating agency down grade of long term U.S.  debt.

 Dow-30 (A) the area around the first debt ceiling debacle and "B" the current political fight, notice how similar prices look at both periods. The white area is where we made +85% of portfolio using only 2x leveraged ETFs in mini swing trades of 2-4 days, we caught EVERY swing, up and down.

This is a closer look at 2011 with the SPX, about a 15% nearly immediate drop. That trading range was like a meat grinder for most traders, but it was some of the easiest money we ever made.

As of the last look at the news, the House of Representatives passed a bill that funded the military, but repealed the medical device tax that partly funds Obama-care as well as a 1-year delay of Obama-care.

The government's new fiscal year starts Oct 1, this Tuesday, it's also the start of Q4 for the market. Wednesday, Sept.25th was the last day for t+3 (Transaction plus 3-days) settlement rule for window dressing, tomorrow is the last day of the 3rd quarter so there are a lot of interesting forces coming together from window dressing, "The Art of Looking Smart" by smart money to the possible (at this point, likely) shut down of about  a third or 800,000 Federal employees on Tuesday and with just about a week or so left, the debt ceiling debate as the government runs out of money around Oct. 22nd, which would cause the government to immediately slash spending by approximately 32%. The government actually hit the debt ceiling in May, the Treasury has been able to shift money around o keep the government functioning, but that cash should run out around the 3rd week of October.

In addition we have political snafus in Greece and Italy as well with a huge group of Berluscomi's PDL party in an effort to force elections which has taken a toll on the Euro as the futures open for the new week.

However, does the market expect a last minute deal? Some of the most successful traders are, CONGRESSIONAL STAFFERS, why do you think that might be?

In any case, all of last week was interesting and required patience, a good thing we did as well because this wasn't a very tradable market...

As you know, the 3C signals were not strong at all last week, thus the patience, however there was improvement in to the end of the week, especially late Friday, perhaps it was due to Window Dressing, but it doesn't normally seem like a reasonable place to see it given the weekend, unpredictable events.

 Some weak positive 5 min 3C divergences last week through a large bullish ascending triangle in the IWN, note the rate of change to the upside in 3C Friday.

Note the 3 min chart's upside ROC Friday, kind of interesting given the expected weekend events.

As far as the market's / Futures open for the new week...

TF / Russell 2000 futures with a 5 min positive on the open today, there's also a 15 and 30 min positive as well. As for ES looks almost completely neutral to me in 1,5, 15 min timeframes.

While the bond market isn't open, 30 year and 10 year futures both popped higher, however the 5 min 30 year (think TLT) , 15 and 30 min are all showing negative divergences, of course the longer timeframes are reflecting last week and until the bond market is open, it will be difficult to get solid information.

The 10 year is much more neutral.

As for currencies...

 The Euro lost quite a bit on Italy as it gapped down, there's a positive there as well on this 5 min chart

Even more interesting is the longer term 30 min Euro chart, this seems like price is acting one way, but underlying trade last week was acting a very different way. Of course the PDL departure was unexpected so this could be a fundamental realignment or discounting, but what if it's not?

 $USDX 5 min positive last Friday at the looks, the gap up tonight saw a negative divergence and price moved down toward filling tonight's gap- another interesting event, at least for early trade which I don't want to put too much emphasis on, but taken with last week, some things seem a little out of place.

The Yen gap up is killing all of the Carry trade,  EUR/JPY cross.

Some of the charts from Friday that I found interesting were the following...
First the IWM chart you already saw, but as I mentioned last week, there was a very thin line between 1-5 min positives and slightly longer charts, from weak positives to very strong negatives, it looks like a perfect head fake set up.

For instance, look at the short term IWM charts above and this 15 min below within a bullish ascending triangle.

That's ugly.

I'd take this as a short term head fake move above the ascending triangle as traders would normally expect as a head fake move below has already started, followed by a very nasty downside move represented by this 15 min chart above, which is what we have been expecting, short strength (core shorts) and sit back and watch the market drop.

So is the seemingly impossible, possible? Does the market somehow go up with these political headlines tonight?

 SPY 5 min, Friday looks different, stronger.

DIA 5 min, the same as the SPY above.

Beyond the averages, the SPY Arbitrage assets acted differently Friday as well.

 5 min HYG leading positive Friday

TLT 2 min leading negative late Friday...

Or Financials...

XLF with a distinct change of character late Friday, perhaps this is window dressing related of something else, but it seems strange going in to an uncertain weekend.

Also some leading indicators, such as HYG's better EOD relative performance or sentiment below...

 Sentiment not only is strong, but stronger in to the end of the week.

High Yield Credit didn't give up ground, but held up well.


I can see the argument of new information in the market and the market discounting it, I just don't get the late week strength/Friday with the market knowing what was likely coming over the weekend, d do they know something we don't? Something futures aren't reflecting? Perhaps something Congressional staffers know?

We will see soon enough, gathering data as the market's open on some real volume will be essential, but this could be an incredible head fake move on the IWM's bullish ascending triangle (to the downside) which quickly moves up, sell off hard in underlying trade as expected with the market following to the downside.

I don't think the end game is any different than before, it's just what happens between now and then and it's an interesting dichotomy, I can't wait to see how it plays out, there's potentially a lot to learn from this moment (week) as well as some potentially huge trading plays if this market is really playing possum tonight.

We have the Budget snafu, the debt ceiling, Italian politics and of course Q3 window dressing tomorrow and the start of Q4 Tuesday as the government is due to shut down. At least we "apparently" know what the F_E_D was so afraid of, "apparently..."