Weekly Recap
Reviewing last week we can see on the equities a few key pieces of information that laid out the agenda of the size players.
Have you ever been tubing on a boat or rafting? My kids love it each summer and fall. They gather their friends, we get out on the water and they fight over who gets to be on the tube.
Sometimes they try to get too many people on the tube at once though. In these situations,the tube gets pushed down and won’t come up until people start to get off. But when they do it shoots out of the water and the people are left behind.
Monday was the panic day that everyone tried to get on the raft.
The commercial side of the market was in risk absorbing mode at the start of the week, but if you had billions of dollars, would you want a lot of risk heading into the election? Likely not, and neither do they.
So we saw the commercial side of the market take on and absorb all the risk and panicking of traders, then move up on Tuesday ahead of the election to get back to risk neutral, and to begin tossing people off the raft.
The election date has been on the calendar for years, but with the advent of shorter term protection, nobody worries in advance. Too many people climbed on the raft, about 43% more than necessary this past week, and when some started to get off Tuesday evening, the upward move was so violent it tossed everyone off.
The breadcrumbs are in the market if you know where to look.
The raft shooting up left everyone scrambling to get back on, and Wednesday was the reset, but some were lost and left behind. Now the market had found equilibrium and the raft could continue it’s set path. This was not rafting the Colorado River, but more like rafting the lazy river, just wait your turn to get on.
Thursday was more of the same ahead of FOMC. A few too many people tried to get on and were tossed out, but we were coming to the end of the ride anyway. Just like turbulence on a plane, rapids in a river, or gold in Africa, volatility in the markets clusters. We will go through periods of intense volatility, and volatility can be up or down, and more calm periods.
We can see this play out from our levels as we never got below and confirmed our rotational low. So holding 5746 was the first signal. Then we moved up to 5795 on Tuesday and over our rotational high at 5846 as election results came in. Over 5846 and our first target is 5898, right were we were stalling out as most votes were counted. We pushed over and reached our target of 5928 when London opened. We retested our pivot and off we went. As expected our range would expand with the election. Wednesday we had the top trades from rotational low to high for 40+ points. Thursday we laid out several trades for members before the market opened with the clear long at 5978 with targets of 6000 and 6024 on FOMC, for the easy 20+ points. Friday was marketing day for the market, 6000 SPX was the target heading into the weekend. We laid out several trades for our students and gave levels to our professional subscribers. The long from 6010 and the short from 6040 were both on our list as top trade ideas and executed by our educators.
For the week ahead
SPX – Commercials are still short as we watch a few other positioning indicators of other participants to get crowded. We still have a small risk window coming up before flows from multiple participants will fully turn supportive in the markets. Check open interest and see that overall it is very low. When more capital begins to get deployed we will have a more clear picture, and likely that will begin to take hold after next week when a few risk events fall off.
For the week ahead we will watch CPI, PPI, and Retail sales as the catalysts to pay attention to. For price we will look for rotational price 5900 – 6042, with our pivot at 5951. Over 6042 and our pivot is 6106 with a target of 6154. Under 5900 and our pivot is back to 5796 and lower edge at 5698.