Well. We spent more time on markets then we wanted to on our week off. So you know I’m under threats of serious bodily injury if I do this again next week when we are taking our 2nd week off. All joking aside we felt it was important to keep an eye on the pulse of markets last week as they went into full volatility compression and we sensed it was a good setup emerging.
As is stands $SPY hit its upper trend line again on extreme low volume and rejected:
And how clean is all this:
That’s a bullish $VIX pattern full stop.
In overnight we saw more weakness on Turkey. Whether Turkey means anything I’m not even bothering to analyze. We’ve seen many of these one off crisis come and go, think Greece, and they never mean anything. Certainly the world is struggling with the strong dollar and the Euro is under pressure due to Turkey. The UK is seeing the pound, well, getting pounded. Brexit is not going well. So there are plenty of trouble spots to watch and whether they lead to a larger risk off event remains to be seen.
Let me say up front: All this price action here could simply be a low before OPEX. It is OPEX week and we are on 2 down gaps here and for all I know we may simply fill these gaps this week:
And if they fill these gaps it’s fine by me. Gives us a chance to reload on shorts.
But here’s the other point worth watching and that is the Cast Away aspect to the charts.
As Mella pointed out on Friday $WLSH has printed an all time new human history high last week. It did so on a negative divergence and then this happened:
That’s an island reversal which could be meaningful if they can’t fill the gap.
The same applies to $SPY:
These could be meaningful gaps from a technical perspective and indicative of a trend reversal. From my perch I want to give the possibility the benefit of the doubt.
And again to note: What did “buyers” know at these levels? Nothing. Extreme low volume and volatility compression again led to a reversal.
But man, this market remains bid on the big $FANGS:
$GOOGL, $MSFT, $AMZN up by almost precisely the same amounts. Coincidence, or simply a reflection of this ongoing circus of passive “investing”?
People feel safe in their passive investments. Markets never go down, and since nobody is investing actively they use their ETFs as savings accounts. Never sell. Best of luck. But, to be fair, it’s been working.
Yet I am encouraged by the line up in volatility. It’s a bullish pattern and it is notable that again early August produced a low in the $VIX:
Based on the previous years we should see further upside action evolve in volatility.
And if that is so, we should see that wedge break to the upside eventually and hopefully $SPX to the downside:
Hence I remain open about the lower risk zone being a possibility into September and October.
And despite the strength in the top $NDX stocks we can note that $NDX produced a 2nd weekly rejection candle on a lower high:
And note all this is coming with an ever weakening $BPNDX:
and again in context of a massive monthly negative divergence and trend line tag:
Based on the $BPNDX chart I’m really not interested in a conviction long trade until we have some oversold RSI readings.
The same applies to $BPSPX:
So let them rally for OPEX if they wish and perhaps we will find a tactical long play on $SPX early this week.
After all a proper flush could get the 2 hour chart oversold:
There will be plenty of support between 2766-2800.
We have the trend line there, we have open gaps to be filled, and of course the lower Bollinger Band and the 50MA:
And we have the monthly 5 EMA as support:
Such a retrace would fit with the previous size fib level retraces we’ve seen in previous months:
If we don’t get these levels this week we may get them next week following OPEX, hence if we get a rally this week due to OPEX I’ll be staying on the sell wagon. And once we do get a proper retrace we can consider position for another early month rally for early September.
We’ve booked some scales in overnight as $ES tagged its .236 fib:
Now it’s wait and see time on how all this plays out.
After all $VIX futures are back to near record short positioning.
A quick note on macro: As I outlined on my public feed this weekend the data sets coming in are brutal. Tax receipts from corporations are totally collapsing and US interest payments on debt are flying higher while the deficit is ballooning:
They’re off their heads. These guys are now actually actively engaged in creating inflation. One avenue is via tariffs, the other is the enormous amounts of debt financing that is taking place. That will create further pressure on rates.
Last week we saw the highest inflation print in many years, the net net: Consumers are seeing negative real wage growth:
That’s the kind of trend that has seen recessions following in the past. So consumers may be adding to credit and spend more on products, but they are doing it while their real wage growth has turned negative. And higher rates, while still historically low have already produced this:
The housing market has entered a recession of its own and nobody seems to notice. Mortgage apps sank 3% in the Aug 3rd week, down now for four weeks running, and the YoY trend has collapsed 17% from year-ago levels.
— David Rosenberg (@EconguyRosie) August 8, 2018
Trade Plan: Maintaining swing shorts. Booked some scales on $SPX and $VX. Now watching for a potential tactical long play for OPEX if oversold readings align with view to resell on last week’s gap fill if it occurs.
For now these markets remain cast away near highs and have a lot to prove.
Categories: Test 2