I thought I would post today cause the market appears to be at an interesting position. First, below are the daily charts for SPX, NYMO and VIX.
SPX is testing a support area of 2000-1993, and on friday closed below the short term support 2019. The MACD(d) is pushing lower after the zero crossing, this is quite bearish and it looks like a big move lower is on the cards. A break below 1993 and the 1870 are comes into play, its a pretty bad scenario from the market perspective though.
VIX is at 24.39, a clear breakout bar, which tends to push it higher next stop is 30 and it could easily test the 53 high we say in August. but its a sentiment indicator and is fickle. Here id say together with SPX the outlook is quite bearish and sets up a nice bear trap
NYMO closed at a very oversold -80 on Friday and as can be seen that is a rather rare event. The sharp move we saw in August was the most recent spike below 80 and continued lower to 104, from where the heavy btfd bots pushed it higher. This is what makes the situation interesting, whether the bears can be confident about their shorts or will they get squeezed as in the past 7 years
Fundamentally, I think the HYG vs SPY spread for me is a clear indication that the market needs to pull lower. But the FOMC meeting begins Tue 15, is announcement is on Wed Dec 16, usually bullish, and quadruple witching on Friday the 19th.
So Scenario#1 that comes to mind is, we see a drop into Monday open, test 1993 and then the bots start buying given where NYMO is. we see a spike higher into FOMC anticipation, market likes what they say, rally continues into Friday and pull us above 2075 and the Santa Claus rally kicks in into EOY. who knows where it takes us, prolly back above 2100.
On the other hand we could see 1993 tested, chops Tuesday and Fed raises rates and market doesn't like it, SPX sells off aggressively towards 1870, starting a down trend, will need to see if there is a target area below that.
To remember this week is that it took just 3 days in August for SPX to drop 2075 down to 1867, -208pts being cautious is really important here.
