Some thoughts to start the week:
Coming into the end of the month and we are seeing the auction play out on the macro. Take a look at the chart we posted last week for NQ with potential scenarios:
Compare that with the current view as we have only AAPL left to report this week:
The auction traded to the key node and paused. This is the expectation, particularly on larger timeframes like this. The auction process is less random than some would lead you to believe.
In another example, take a look at RTY:
We don’t often see markets come back to large nodes like this (particularly in equities where the natural position is ALWAYS to the long side), but the return of RTY to this node from 2016-2020 is indicative of the macro pressure equities are facing in light of higher for longer interest rates.
This week, we have month-end, FOMC, AAPL earnings, and NFP on Friday. Given how equities closed the week, we’re expecting to see new weekly and monthly lows once we get into November. This lines up well with the state of the VIX curve which is inching toward inversion. Here’s the outlook:
VIX Curve: While the curve continues to tighten but not inverted, we remain of the position that the low is not in. Markets rally when everyone is bearish and everyone is not bearish enough yet. With FOMC, AAPL earnings and NFP on deck, the stage is set to bring out enough fear to get us inverted. There is still time for a bit of a Santa rally. However, if we keep pushing lower toward 395 SPY, then the reversion may only get us back to where we are now.
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