Short Term Trading Week Starting: 26 November 2018, page-9

Good morning traders,

 

US E-mini ESZ18 (S&P 500) futures are hanging out about 10 points from Friday's 2628.5 and CLF19 oil futures are hovering just over the 50.00 mark in the aftermath of Friday’s oil rout.   Note that oil did not react positively to Friday's news that the Saudis were working with OPEC to tweak production and, we suppose, prevent oil from falling further away from levels required to balance their budget.    They obviously want to achieve a balance between going broke and jeopardizing their tentative friendship with the White House.  Skeptics feel that the supply glut is rather intractable, despite whatever jawboning they have in store.   Will the US indices trade with oil this week?  Will pre-holiday shopping statistics provide a floor via the sectors that rely on the US consumer?   Will the 'oversold' FAANG join in? Does AMZN have something up its sleeve after the weekend's positive online retail figures?  And then there is that Brexit stuff too, I hear they are getting somewhere?

 

Flickering embers of hope like these illuminate the bearish shadows caused by the drop from 3 October and the bearish macro outlook being put forth by those who see the glass half emptied by impending Fed hikes, the idea that the best of earnings is in the rear view,and that the business cycle is nearing its end.   Oh, I almost forgot...the President is meeting with Xi Jinping at the G-20 this weekend.  There will be a cadre of energy producers there and they will be haggling behind the lines.   Will trade or energy representatives try to juice the markets going into that meeting? Bears might be sort of worried about their heretofore successful winnings, muted VIX aside.

 

If you caught the recent tone of the fund managers and investment bank PR people making the rounds on the financial networks, you might be confused.  Did you notice the dearth of positive headlines this weekend?  It was like the dead zone.  Last week, we saw tales of inverse head and shoulders patterns...we  saw prognostications of a run to 2900 that would be followed by  a less-than- spectacular 2019 and last week we also saw rumors (unnamed Fed sources) of the Federal Reserve getting cold feet and slowing down the pace of hikes.  The fed funds futures are and Fed members are all over the map on 2019 projections, lately…are we used to being kept off-balance yet?  It’s an art form; you know…everyone’s doing it.

 

Should we have a holiday rally?  I've never doubted the power of the holiday rally.   It is a thing in and of itself, born of gratuitous, rash exuberance. That being said, I'm in high caution mode...with a twist.   My post-traumatic stress flashback disorder has me wary of their shenanigans despite the tide of bearishness mentioned above.   While the holiday rally business was fine when there were new medium and long term rainbows to be considered, investors and traders seem to be kind of nihilistic relative to the previous ten or so holiday seasons I have traded.

 

On the bear's near-term radar is 2603,which marks the October low and a viable bounce point for those inclined to believe that we are going up from here on pre-holiday bliss.  Next is the February low of SPX 2532.69.  That is about -4% from where we left off on Friday… 2632.56.   The Feb low is an area of interest for those inclined to believe we need a proper spike in the VIX before we can have a holiday rally.  This particular path is becoming ingrained at the moment...I’m giving consensus a ‘side eye’ here, even though we know it sometimes becomes a self-fulfilling prophecy.

 

The bulls of course think that the violation of that supposed inverse head and shoulders pattern formation was a product of the low participation going into the Thanksgiving holiday.  They feel the October lows should be sufficient before any rally. They also are a bit cautious staying short in a market that is moving sideways after a sizeable drop.  If we were to bounce here, bulls and bears alike would probably be cautious if the market were to approach SPX 2700.   One would think we'd need a catalyst above and beyond mere holiday bliss; perhaps in the form of renewed jawboning vis trade or something to break higher from there.  Bears would be keen to go short at 2700 if bulls managed a quick bounce here.  

 

It would appear I've said a bunch of nothing, here, but I just thought I'd tell you what I see going through the minds of traders as they approach Monday's session.   The derivatives on SPX seemed sort of undefinable going into last week’s close, but they should become clearer at tomorrow’s open.