Markets Overview Week of 11/17/24
No Paywall
This is just meant to be a high-level look at a few areas of interest across markets. I’ve included a bit of commentary. It includes SPY 0.00%↑ QQQ 0.00%↑ IWM 0.00%↑ DIA 0.00%↑ VIX TLT 0.00%↑ DXY and Gold, and Crude.
SPY 0.00%↑ effectively traded in a range for 6 weeks leading up to the election before seeing a massive breakout on election day. We got the volatility we were looking for in the back half of the week, and Friday’s low came in for a back test of the prior range.
This back test also corresponds to a test of the 20-day sma. Given the strength of the market for the last 12 months, it is reasonable to expect this dip to be aggressively bought. If you have been here a while you’ve seen me suggest that “If what you fully expect to happen does not happen, then pay attention.” The response at the back test on Friday was relatively weak, but we can perhaps forgive that given the bearish context of the day and the fact that positioning had been extremely stretched coming into the week. If the positioning unwind is not done and we see continuation lower on Monday, then we have a couple of trap spots within the prior range we will be monitoring. If we reverse higher on Monday, then we must assess whether it is a lower high to short or the reversal for a new high. The presence of the island gap overhead certainly complicates matters.
Below is the chart of YM (Dow futures) showing that it too is coming in for a back test of its prior ATH range and is well above its 20sma.
RTY (IWM futures) back tested and has (thus far) held a key back test of the incredibly important 2289-2309 and its recent consolidation range (box not shown). Below 2350 it has technically pulled back within its massive 1-year consolidation range from 2021. This is a perfect spot for a trap back within that consolidation range if it can fire back above 2350. Be aware that below 2289 can bring another test of 2190-2305. We again have a few spots between for this week that can prevent that full move but one should remain aware. A loss of 2190 following a look above and fail of 2350 would be . . . suboptimal for IWM bulls. There has been a lot of speculation that IWM may perform extremely well under a Trump administration. I believe the price action into the end of the year will give us clues as to whether or not this view is correct.
Seriously though? A second island gap down for the Qs which have effectively gone nowhere for the last 4 months.
The below is a different look using NQ (QQQ futures). I generally don’t trade patterns, but I would think this needs to hold or see a quick trap lower or risk another test of the September low AVWAP (blue) and the 20010 spot.
SPY 0.00%↑ we looked at above, and here is an alternative look at ES futures. The notable difference is that ES closed back within its prior range of consolidation. This is a function of contract decay in futures products that does not exist for SPY and SPX. I monitor and consider both.
VIX futures (VX1) responded as expected at stacked demand and failed Friday just below a key inflection range. Above that range (call 17.6 the top of the range) and we could see continued pressure on equities. Basing above 18.15 and I become extremely cautious. Note this is VIX futures and not VIX.
TLT 0.00%↑ A lot of people are looking to be long TLT. I’m monitoring 30-year bond price as a proxy. It has been quite heavy and grinded through demand over the last few weeks which isn’t a good look. I don’t see much of a reason for it to see a meaningful reversal absent a catalyst (next NFP would be the major catalyst) but it offers a spot to work against for longs. Grinding further through this spot would look like a pretty major breakout for yields.
The dollar has been on an absolute tear lately. It is currently at the top of its nearly 2-year range.
It is commonly assumed that dollar strength means weakness in risk assets. I would draw your attention to the July selloff in indices. The pink line in the below chart shows NQ against the chart of the dollar. You’ll note that equities moved lower with the dollar. Before applying this (or any) common correlation, we must ask ourselves the macro circumstances that exist that are (in this case) causing the move in the dollar (or yields, etc). That said, things could get very interesting if this range breaks to the upside and isn’t rejected by the same prior range that rejected in 2022. It is far less likely that a major technical move in the dollar (or yields etc) will be ignored by markets. Large technical breaks often have ripple effects that can cause positioning to unwind across markets. I will very much pay attention if the dollar breaks this range to the upside and gets into the range above.
If the dollar fails the top of its range and yields hold steady or cool off (bond prices flat or higher like ZB above) then I become increasingly interested in gold. Gold is a bit trapped here but responded nicely at Demand on Thursday. It likely needs to build a base here and then clear 2596 and ultimately 2626 to make another run at the highs. Silver is not quite as clean, so I didn’t include a picture.
I’ve been looking at Crude and Copper as well. Please turn up your sarcasm settings briefly. Crude and copper are going to zero (crude to negatives again) because of an imminent global depression, while the dollar and yields are screaming because of resurgent growth and/or inflation. Duh.
I see nothing in the copper chart right now to make me want to do anything with it. I will, however, provide some commentary and areas of interest on Crude. If crude provides me with a great setup (long or short) outside of these areas, then I will consider a trade in the coming weeks/months. In terms of taking a meaningful long, however, I’m looking for something very specific. First, I would like to see the geopolitical risk fully removed. This makes for great short-term trades (both ways), but I have something else in mind. I’m looking for the next growth scare. My current bias is that the economy will not be allowed to be in any kind of meaningful recession for any meaningful amount of time. I therefore lean toward my “Inflation 2.0” thesis that I’ve mentioned previously. If this plays out perfectly, then crude and energy could be a “fat pitch” trade that can make an entire year. This is the situation, and below are the first spots I’m monitoring. Keep in mind this could take a long time to setup perfectly.
The first (the yellow path) is a trade that I would consider taking regardless of the perfect macro setup. The circled rectangle is a spot on the chart that I think will be underappreciated by most and I would love to buy there if the macro situation sets up.
Good luck this week, I’ll have the usual weekly plan out shortly.
Looking at OD heatmap for Monday, if SPX opens up above 5870, then the range from there to 5910 has relatively low magnitude gamma. Possible slow grind up may be in the cards. But, on Friday, price dropped through some heavy magnitude gamma. But, probably had something to do with MOPEX because normally that heavy magnitude gamma is a road block under "normal" non-catalyst or OPEX days. Anyways, just observations and talking shit....hahaha...have good weekend.
When you’re referring to the 21 SMA is for RTH only - 9.30 am EST to 4 pm EST (or 4:59:59 pm)?