I hope you had a great weekend.
Overnight futures sold off sharply, erasing all of the Draghi QE3 gains on an event that was probably just as widely anticipated if not more than the ECB's QE, the elections in Greece and the anti-austerity/anti-bailout party, Syriza, winning and going on to form a coalition government with another anti-bailout party setting the stage for a Greek exit from the Euro-zone.
How the market didn't discount this I have no idea, but the sharp drop in futures overnight was evidence of the concern about a clash between Syriza and the Troika and Germany which will likely not end well for European banks.
Since then, Index Futures have recovered just about all of the overnight losses with an in line 1 min intraday chart thus far, I've been trying to wait as long as possible to see if it turns negative as the intraday charts closed negative Friday, suggesting a negative or weak a.m. session this morning, followed by some later strength.
We do however have a negative divergence brewing in USD/JPY which as you know shares a tight correlation with the Index futures more often than not and has seemingly been futures' savior this morning, but we know how the market often pops a knee jerk surprise at the cash open, this may be it....
Oil saw a jump when OPEC's general secretary Abdalla El-Badri said oil prices could reach $200 a barrel if there's a lack of investment following this price slump.
Our larger picture is still calling for a decent bounce in oil that likely sets off a short squeeze, but I don't see this as a trend reversal, there just doesn't look to be enough base to support anything like that at this point.
I'm also still expecting a pullback in GLD, one which I think is tradable, but what has become more interesting recently is the possibility that gold is starting to look like a longer term long as we have been watching a base develop there for sometime that seemed to go quiet for a bit. Thus a pullback in Gold will be looked at very carefully.
As for the ongoing bounce, nothing has changed since Friday's The Week Ahead post which can be summed up as,
"I suspect it probably won't take too much longer (in to next week) for the bounce to start to fail, leaving us some good opportunities to set up some nice short positions or add to.
I am still waiting on a few leading indicators to give clear signals , but this can happen very quickly.
As for early action next week, it looks like early weakness on Monday, although I think it will regain some strength in the later part of the day or some time afternoon-ish.
The important base-charts are seeing damage so I think we are getting very close, I'd still be patient.
The next trend in multiple timeframe analysis continues to deteriorate so it's already set up for a much nastier move to the downside.
Finally I think the IWM/Russell 2000 outperforms the other averages early in the week as it has not met minimum targets and has some better looking charts relative to the others."
I'll be checking on intraday charts in the futures right up to the open, if anything changes and suggests the weaker a.m. tone that I expected from late Friday, other than some evidence we are seeing of weakening in USD/JPY, I'll post it.
As far as the market bounce goes, nothing has changed since Friday's post excerpts from above.
I'll see you shortly.
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