Weekend Stuff A classic bear market rally, they tell us. Last...

Weekend Stuff

A classic bear market rally, they tell us. Last week's action has everyone worrying. Political upheaval going into 3 January's new Congress adds to the nervousness over bent technicals, depressed energy prices, a fragile looking high-yield market and increasing QT. Fireside chats at Georgetown parties this weekend will center on a troubling confluence of events; namely, an increasingly isolated and outwardly immovable president, an obtuse but possibly moveable Federal Reserve and a new House of Representatives that will vote to fund the government this week. The resolution to end the shutdown seems simple enough, but the lower House has a dilemma: If they get into high-gear to contain the president they run the risk of making him even angrier and further frightening investors at a precarious point in stock market history. Do they care? You bet they do. Meanwhile, the president is tweeting about big impending deals with China and the WSJ is reporting it in an atypically ungated fashion. Meanwhile, their editorial board is telling us that those investigating 2016 election interference are on a wild goose chase.

US Indices on Friday's close: SPX: (-0.12%), NDX: (-0.05%), Dow: (-0.33%) and RUT: (+0.46%)

Weekly indices: SPX: +2.86% NDX: +3.95% Dow: +2.75% and RUT: +3.55%

Friday's NYSE breadth: 1.05:1 and NASD breadth: 1.27:1 was neutral. NYMO: -10.126, has climbed to near the zero line. PCC is at the lower end of the YTD median band. VIX is holding above 25 and the futures are front month up. NYSE MOC market imbalance on Friday's close: +154M.

The Friday ESH19 overnight session and the RTH session were both balanced but the two end-of-day single print spikes from Wednesday and Thursday were anything but balanced. That scattered action has undergone a bit of repair -- but the bears don't care. Although Wednesday's action shows short-covering, the follow-on reinforcement of that scattered profile implies that short-term actors were engaged and doing battle with stubbornly short participants. Friday's profile implies traders are short going into the weekend. It might also imply that index balancing was responsible for Friday’s last hour drop. Many bears feel that because there is no real buying, the market will reverse and go lower from here; but what about the holiday week's low participation and tax selling?

SPX is in a firm downtrend from 3 December with declining averages on a low-volume holiday week bounce that did cross the steep, innermost trend line with a shallow break that will not be trusted when viewed in the context of the long series of lower highs and lower lows since October.

The bottom of last week's ES spikes and the top of the Wednesday rally value area is about ES 2445 and that is an area that will be pivotal for next week. An early retreat to that level will have be closely watched because a failure there will probably create anxiety about a drop back to recent lows. There is that 2017 business area between 2387 and 2381 above the YTD low of 2346.58 and longer term participants will be watching the reaction if we visit either level. A lower move would put the 2011 trend line in play.

Volume

SPX 2535 is still in play. A direct shot is possible if the shorts are wrong. A pullback to 2450 on lower than average volume followed by a bounce on higher volume would keep that February low in play. A preemptive close above 2535 with volume, gusto and preferably on some catalyst would make the bull’s point of view a little more contagious. That would put the 50% retrace of the SPX downtrend from 3 Dec on the short termer's map. SPY 30 minute and QQQ 30 minute updates. Weekly ETF quad.

VIX futures are still in backwardation and there is quite a bit of protection in place. Some will continue to be long VIX derivatives but I can't stand being short the index when the scorpion's tail (of the /VX term structure) is up like that. The hardline bears feel they know something the bulls don't, and I do respect their opinions -- even if they seem to be playing with fire.

The low volume holiday trading period had an influence on that short covering and what it ultimately means for the market going into the first trading week of the New Year. While I would be extremely cautious, I am still of the mind that the recent low might be viewed as a pivot point for participants who prefer to stay under the radar until the right moment. It's not in the interest of funds to show their hands until the very last minute. If they don't step up, we have the two trend lines that correspond with 2300 and 2200. SPX monthly view.

The president's mood is volatile at the moment. Dreams of glory and gratitude are fading but he is hanging on for a vindication that will soften what could amount to a really crap legacy. His partition of American support (about a third) is dwindling. Wall Street firms might prefer to be finished using the President but that is a grudging dismissal of their golden calf; two years in a desert of quantitative tightening is a long time to wait for new vistas or paradigms. Perhaps the stock market will grudgingly go for another inning with Dear Leader if a credible enough catalyst is provided in the short term. Alternatively and in the absence of more political chaos, they might just decide to give the bears a fright -- for old time's sake.