The Week Ahead

I don't think this week can be looked at by itself just as I said last Sunday, it's kind of the rest of the month ahead as of last week. The assumption that a lot of the pros would be off for a very extended holiday from last Sunday night seems to be right on target as volumes are atrocious. Many of the undercurrents from last week are resolved like Window Dressing and the week before's Quad Witching, but I expect the volume isn't going to be any better at least until Thursday and really probably not until next Monday.

This week has some pretty important macro data, but what really stands out (remember the markets are closed Wednesday, but a full day Tuesday) is the 4 F_E_D speakers this Friday, it seems a bit strange.

Here's the schedule for economic events, note the "Equity Settlement Date" at the bottom and you can see we are through Window Dressing, the only possible under-current is year end performance, but that's what, 2 days )Monday/Tuesday).

I'm thinking the 4 F_E_D speakers may be in response to the 10-year yield, if I had to guess, I'd say the yield will come down a bit this week, however my guess would be later in the week.


I'm not getting much from Index futures, at least not 1 min charts, 5 min charts looks (as of now) that TF and NQ may improve, 3C is looking a little more solid very short term, ES is the opposite. At 15 min they all start to deteriorate consistently and the divergence or the concept of Migration of a divergence has pushed negatives all the way out to 60 min charts which is kind of a big deal, I'd typically take "trades" based on a 5 min alone and the 60 min Index charts generally didn't have much to say. Here's the Russell 2000 Futures on a 60 min chart

That looks like real serious trouble because the divergence has migrated out that far, the further it can move out (timeframe) the stronger it is. Also note volume at the bottom and how it fell off badly right in to Christmas week as expected as the fat cats take what they think is a well deserved break with two holidays falling in the middle of two consecutive weeks.

I'm very interested in the Nikkei 225 futures. Of course China's interbank liquidity as we get closer to the end of the year will be something to watch, the liquidity needs always rise at the end of the year for Chinese banks to meet regulatory guidelines, but this time it's way above and beyond any past seasonal jumps. So the liquidity and Money Markets there are going to be very interesting to see what's really going on there, this is 2008 Lehman kind of stuff.

In the US, the 10 year yield and the 3% mark is the big one to watch, we hit that level this year once, but the previous time sent the market down by -20% almost immediately which made for an awesome two months of trading in which we nearly doubled a tracking portfolio using only leveraged ETFs and Swing trades of 2-5 days.

The Yen was knocked down a little on the open of FX trade for the week today, but nothing like Thursday's decline as trade started back up after the holiday. Thus far the Yen has retraced most of the gap down, which again wasn't very big. Most of the carry pairs were up and are up a bit on the Yen down (I wouldn't call it a smack down), but it hasn't seemed to do much for futures as they are largely slightly in the red.

I said Friday I expected gold to fill the gap (GLD) from Friday, it looks like it is doing that, I THINK IT WILL BE A BUY ON THAT PULLBACK.

Crude is acting well and coming out of its consolidation, this has been our forecast ever since it bottomed, so I hope some of you were able to get in on that action.

Beyond that, there's not much movement in futures, not much on the wire either.

Oh I forgot to mention VIX as it put in a support/reversal candle Friday at the lower Bollinger Band and still has a strong BB squeeze that it owes. I think we may very well see that as VIX futures look to be coming alive after that tough pullback.

VIX 15 min futures come alive on the pullback.

If I had to guess based on the very limited information we have tonight and not including anything from last week, I'd say that since Gold has been trading opposite the market and a slight pullback/gap fill is my guess for Gold and since the VIX futures are looking to have found their footing, I'd guess that we see the short opportunity that I wanted to wait on Friday, developing likely late tomorrow or the afternoon. The gold pullback doesn't need to be more than a gap fill and the VIX is ready to go, so tomorrow may be the right time to fill out the trading shorts (perhaps longer ones as well) which were being considered on Friday, but I decided to be patient and wait for Monday. That was my gut feel Friday afternoon and still is. 

Again this week will see some other undercurrents dissipate like year end performance on Tuesday. From there it will be about the F_E_D and likely next Monday before volume starts to return to normal.

For instance I thought Window Dressing would be big in to Thursday, take a look at the Algo / market lifting HYG and how it reacted vs the SPX up until late last week.

HYG was there to do what it is meant to do when it's not actually being accumulated for institutional risk on which it has not been since May at least, but after the job of Window dressing was done, look at the fall in credit and compare that to how it behaved before. 

THIS CHART SPEAKS TO ME, THROW VIX FUTURES IN THERE AND DOUBLY SO.

My initial plan is to collect some data the first half of Monday unless the market is substantially different than I expect, for instance see if gold pulls back in to the gap and see if it is accumulated, then GLD or UGLD may make a nice long or call position Monday afternoon. I guess we'll have to see what VIX / VXX and the market in general does, but movement is good, it allows us to see if there's accumulation, confirmation or distribution and it allows us to see if multiple assets are confirming. Right now my game plan is to try to get that data during the first half of the session and act on it in the second half of the session.

Have a great week, we have Wednesday off and Friday is a big F_E_D day.

I'll see you in a few hours.