Some reflections from last week:
- A shortened week to begin the year. Equities moved in tandem from the start to one-time frame lower all week into NFP on Friday. Late, overnight shorts were trapped by NFP buyers and we balanced enough to pull 5D value lower….accepting the lower prices.
- The initial read is that this was a “liquidation break” which is temporary. We had poor structure left behind by the Santa rally and the auction did a good job backfilling the poor structure. Further acceptance lower could prove more ominous.
- Despite the consistent selling to start the year, we didn’t see mounting fear in the VIX curve (see below). This, unfortunately for buyers, keeps further exploration to the downside in play.
Some insights for the coming week:
This is the first stormy week of 2024. We have CPI, PPI, and the kick-off to Q4 earnings season with the banks reporting on Friday.
- ES begins the week in a bearish posture. Unless buyers can accept above 4755, we remain poised to keep cleaning up the “holes” left from December:
- NQ also closed the week in a bearish posture. The Weekly profile is imbalanced to the downside. Expecting a push to test the composite HVN at 16,250. 16,460-16,560 is a chop area. If buyers want to “buy the dip” they need to get above 16,600. If they can, they can start working back toward 17,000. Buyers want a test of 16,250 early in the week, not later….
- RTY Balanced with the 5D VPOC after NFP buyers, created buying excess, and balance around 1977. Assuming the buying excess holds looking for the auction to test toward 2003. If buyers can accept above 2003, then 2026+ is in play. Friday excess low fails, we may test too 1905 before buyers emerge.
- Crude is in a range from 70 to 76. Balance from 72 to 74. So, above 74 look for a push toward the bracket high at 76. Below 72, we could once again retest the 70.
- For the coming week, we have several potential catalysts, the most significant being CPI and PPI on Thursday and Friday, but don’t rule out the potential for movement off the Treasury auctions.
VIX Curve: Divergence in 2024 already as last week’s sellers did not bring out the hedgers. Instead, we ended the week with reasonable complacency, which is not what you want to see if you want a rally. This means, along with the ES narrative, we remain in a position for continued liquidation to see if we bring out enough put buyers to slow the downside. Otherwise, we can continue slipping back toward $455.
Upcoming Development Lab:
With 2024 underway, let’s review what’s working in the new year. We’ll review some “playbook” trades.
Stay up to date with us via our Twitter posts this week.
Define your risk and trade well!