On Friday, the SPX closed at 3811.15 or -0.48% on its 50-day average after a very sharp liquidation near the close. After treading around a point of control near 3830 for much of the session and making a high of 3861.08, we got some closing games that spilled over into the final part of the ES trade. The session played out on mildly negative to neutral market internals and a sector profile led by information technology, communications services, and consumer discretionary. The DJIA had bounced near its 50-day moving average only to return on the close, while NDX stayed above weekly lows with the help of bouncing Treasuries. The RUT small caps broke through but maintained the 30-day average. ES futures made a high of 3858.50 but the closing action led to an ES rth close of 3802.25.
Whew, the closing action was so fast you would need your own automation to keep up. Have a look at the last 30-minute candles of the ES cash session to see that. Or better yet, check out the one-minute chart. This all happened on falling Treasury bond/note yields, so yesterday's tighter cohesion between bonds and stocks did not hold up today. The market is spooked and there probably was old business to take care of even as yields fell along the curve with most action at in the long bond. I understand the Aussie emergency bond operation helped things out last night.
Before that rambunctious opening and closing action, Friday was a day for trading (with small positions relative to your normal tolerance for heat) as we bounced around over weekly 3800 support.
The weekly SPX pivot turns out to be 3850 and Wednesday's recovery trade did not alter that. I try to avoid throwing out alarms unless we deviate drastically from the basic framework for weekly levels based on data crunching, but as mentioned here before, market internals matter and Thursday's negative breadth was getting to the freaky zone -- not strong enough to imply surrender but too strong to take many chances. Like the close, Friday started with a fall so rapid that one of my data feeds for the ES futures kept leaving gaps on a profile chart and had to reload the chart several times. I always interpret given technical support through the lens of market internals. There is no one thing we can rely on -- there are a bunch of directional instruments that you use when moving through all kinds of weather, if you will. Internals are high on the list of importance. Also, yesterday's close was quite frenetic even if the afterhours trade became kind of methodical. Unless you had machine like skills that was risky to trade. Bear in mind I figure if you are trading anything related or even indirectly influenced by exchange wide volatility (be it ASX or NYSE), you will take everything you hear and read in the context of what you already see.
The initial thing of note today was that early AM shot below the SPX 50 day moving average and subsequent recovery. If you watch the index or ES futures, you will see a gap from 3777 through 3799 from the first of the month that was only partially filled. Total fill does not have to happen it is worth keeping in mind next week. There are two naked points of control below. One at 3771.50 and another at 3708.75, the former a focal point on a break below 3800.
Monday will have traders scrutinizing 3800 for the RTH session but this must be viewed in the context of Monday's market internals, the way that the ES auction formed on Friday, how we trade at the ASX market open as well how the indices and sectors are/have been rotating/behaving. With that kind of close, I would be framing SPX levels more carefully than usual. Even hedging levels should be suspect when you have frenetic jumpiness that does not respond to the very Treasury note action that supposedly set this whole thing off.
Despite the close, the VIX did not jump higher, closing at 27.95 or -3.25% on the day. Those who are long protective positions - or net short the index - are always running a risk when you get a VIX spike of 35% the day before and VX futures backwardation (front month is trading higher than next month). People who went into the weekend positioned short are at risk of sustaining the effects of net capitulation if buyers come in and protective positions are unwound en masse at technically important levels, causing those who sold that protection to hedge and neutralize their own positions. Those who did maintain short positions obviously do not think buyers will materialize. This phenomenon works both ways. If we go through 3800, we should see how price acts around that gap and naked points of control in the unrepaired structure below our current level. Keep an eye on VX futures at your ASX market open but maybe keep in mind that we things do happen fast in this kind of environment.
