Winter has become one of my favorite seasons here in Valencia. Although the stream of tourists prowling our streets never really ceases completely things eventually start to quiet down near the winter solstice as most travelers return to their Northern shores in preparation for celebrating Christmas with their families. For us traders however week #51 marks one of the busiest earning periods of the year as the historical odds usually are in our favor. But of course not always!
Over the past few days I’ve kept hearing about Zoltan Poszar’s ‘doomsday’ report warning about an impending crisis in the Fed’s overnight repo market. Let me dumb it down for you: According to Zoltan a massive liquidity squeeze is taking place as treasury cash balances have fallen, in turn suggesting that bank reserve balances will follow lower any day now. In a nutshell some (European – cough cough) banks may go poof by year’s end.
The first two sessions of week #50 have followed the statistical downside bias I presented on Monday. We’ve lost roughly 30 SPX handles in 2 sessions which – based on the historical change % stats – is pretty much in line with what we should have expected. So let’s see where we are and if there potentially is more downside ahead of us:
We are starting the week with the E-Mini futures in shouting distance of our current all time highs at 3154.26 on the S&P 500 cash. So what are the odds of breaching them this week? I’ll come right out and tell you that the odds unfortunately are not very good. Let’s review: