The Ides of OPEX
The Ides of OPEX
by gmak
Greece has a backstop. EUR$30 billion in promises at below-market rates has been promised to help Greece from the EU, and another E$15 billion from the IMF. Greece insists that they don’t need it. The EU members would still have to approve any disbursal unanimously. In other words, this is all locker room talk – and we all know how true that is.
The truth is that the EU ministers didn’t approve any money. They just laid out the terms under which money COULD be provided. As mentioned, that would still require UNANIMOUS consent by the EU leaders. Hello?! Germany?!
So not only does Greece insist that they don’t need this money. They’ve also said that later on, there is another E$50 billion that they won’t need either. It’s funny how the sound of a kicked can bouncing down the road says: Tick. Tock. Tick. Tock.
Needless to say Greek assets and the EUR are just running away as the hocus-pocus jawboning was enough to scare the late shorts. EUR traded well into 1.36. Congratulations to those who got long on Friday.
It’s funny how life imitates technical analysis. If you remember, I wrote about this very subject (the EUR ready for a move up) last week – for those with a time scale longer than intra-day.
For a global economy that has just been saved by an EU minister holding up a picture of some money, Asia sure looks stressed. You couldn’t tell that the risk trade was back on. If it is, someone forgot to tell the emerging markets as SE Asia is pretty much red, with over 50% of the members of those stock exchanges down so far today. Developed Asia is green except for Hong Kong and S.Korea. Breadth is not good and the gains are relatively small.
THe DAX gapped up but has since closed that gap and is consolidating just below 6250. There is still the BIG gap from Friday that needs to be closed – but patience. The next couple of days will be echoes of short covering in many Euro-related assets. Financials, Telecom Services, and Utilities are driving the market with strong breadth – so it looks like mainly a risk trade. Trailing are Industrials, Consumer Staples, and Materials – so the rotation was OUT of economic growth and into the paper economy.
The only news is Greece. The only data is the US Budget statement at 2PM EDT.
ESM0 opened higher on Sunday and has been drifting down ever since. I see very few green bars on the 30 min chart. The pivots are in a fairly tight range:
- R2: 1199.50 = This was the target overnight, it seems, but there was just no will to get there. TD resistance is now at ES = 1197.75. How tough will it be to get through? That is the million dollar question.
- R1: 1186 = This was support for a while until Europe opened. Since a bearish cross is forming on the 30 min chart, I would say that this is now the roof. I’ve got TD momentum (down) as qualified, which means the target is the price exhaustion at 1189.50 – which is a pivot by coincidence.
- Neutral: 1189.50 = This is the price target for price exhaustion, meaning it is supposed to be around where sellers run out of steam.
- S1: 1186 = This is also the level of a TD support level. This should act as a floor, but if the 30 min bar closes below, and the next one opens even lower, and stays red – then that would be a definite indication that the next pivot has become a target.
- S2: 1179.50 = This is all that remains between the financial world and the end of civilization (if you believe all the financial elite). I don’t see much support here. And I certainly don’t think that getting below it means the waterfall is going to begin.
If you’re a subscriber, there is more to follow.
This chart is a little busy because I am loathe to get rid of the FIB lines. Suffice to say that the “Since Oct 21” trend line has been retested and DECISIVELY broken to the upside. The FIB lines are falling like pins in a bowling alley. However, TD indicators (the blue picket fence, and the purple dashed line) say that there are TA headwinds above.
TD has resistance at SPX = 1194.58 and SPX = 1200.83. If the second one, which is the purple dashed line, is broken decisively (remember that means a close above with the next bar opening higher and closing even higher on the day) then SPX has quite a way to run. Looking at the SELL counts – a 13 completed, and another ‘9; SELL setup about to end today), I believe that that resistance will come into play. The low risk SELL is still valid, but the stop level is 1207.79. Again, TD uses the same “Decisive” indicator for a stop – just hitting it isn’t enough. SPX has to close above the stop level, with the next bar opening higher and closing higher still. This can be nerve wracking if SPX decides to take a run. So I don’t put stops based on the daily levels.
If you notice, just at the lower right edge of the circle, there is a yellow upside down triangle. This is the beginning of the momentum picket fence to the downside. It is around the level of the dotted yellow 21-day SMA. TD is suggesting that conditions are beginning for a move down. I think that that trend line of “Since Oct 21” is now decent support and it MAY take a bit to get through. It’s hard to say in these low volume markets.
Certainly, looking at the stripped down chart
I have a hard time seeing a market that is going parabolic (exhuberant, yes. parabolic, no.) In fact, the whole sequence since February looks a lot like March 2009 to June 2009, no? There is a liquidity-induced move, if I ever saw one.
the question still is – how long can these plates be kept in the air without distribution? I still believe that in the absence of retail and mutual fund money to come into the market, distribution will have to take place by short squeezes. If one has that thought process in mind, then the rest becomes a little more clear. Just look at what happened in June and July of last year, and keep that in mind as the market turns south (when it turns south).
I don’t really have anything to offer on the EUR, except that Greece’s condition is unchanged. The only new information is that the EU has said how it would compute the interest rate on loans provided to backstop Greece – even though Greece still insists that they don’t need it. I would expect the EUR to remain here until there is more clarity – but look for short selling to build up again as we get near the pigs in the python that are Greek debt maturities.
As always, I welcome your comments and insights.
Cheers.
PROBABILITY UPDATE
Sorry that I am a little late with this. I am taking some time off from work and trading, after all – but I will be keeping up on my posts.
I just ran the numbers for the bar shapes. the results are interesting. Given Thursday and Friday, the odds are that today the close will be in the same segment of the bar, or lower than the open. i.e. CLOSE < OPEN.
SPX has spent 28 days fully above the 55 DMA. The odds from here on out are greater that SPX will be above for more than 50 days, compared to between 31 and 50 days. So, unless a waterfall happens before Wednesday, there is a greater chance that this puppy will run some more. NOTE that this does not preclude a mini correction of some sort – it just indicates that how long SPX might stay above the 55-day SMA.
I almost forgot that this is OPEX, it came around so fast. The only correlation I found that was close to being meaningful is that of the days of the OPEX week against the entire week. There is a 50% correlation between the returns on any individual day (more or less) and the entire week. I don’t think that that is tradeable (correct me if I’m wrong) – but it does illustrate how difficult it is to garner any useful information from the relationship between days and weeks before, including, and after OPEX.
If I were to leave you with only one message, it would be “Beware the Ides of OPEX”. In other words: Do NOT sell into the hole. Any correction is likely to lead to a face-ripping rally, all things being equal. This is assuming that the correction is not driven by some financial apocalypse from deb default.
