The collision of global markets and social mood

Monday, December 14, 2015

Monday -- Waiting On Wednesday

S&P E-mini Futures:
Rollover has occurred from the December to the March '16 contract ESH16.

New low overnight has been met with buying thus far.

This week is already shaping up to be big.

On the one hand, conventional wisdom is leaning bearish.

There is also a large imbalance of put vs call options expiring this Friday, just two days after the Fed meeting on Wednesday.

According to JP Morgan, $1.1 trillion in S&P 500 options are expiring Friday morning, $670 billion of which are puts, $215 billion of which are betting on prices between 1900-2050.

Zero Hedge is in a lather about this and has speculated that the market could trade down to 1800 due to the stop loss nature of these put positions.

I find this doubtful. If anything, with such information known to the market, there could be a huge incentive to make them go out worthless by driving the market above 2050.


Enter WSJ's Jon Hilsenrath, the closest thing to the Fed's own leaker-in-charge.

His latest missive regarding how the Fed is concerned that a rate rise might have to be quickly rescinded ended thusly, "In short, the age of unconventional monetary policy begun by the 2007-09 financial crisis might not be ending."

Indeed, if Friday was any indication, the treasury market got the news early.

AUD & CAD stronger. USD firm. Biggest moves in GBP and AUD thus far, but USD firmness should be noted.

Regardless of how lame their charts may look, treasuries were screaming Friday that the Fed was gearing up for another epic choke. This has me taking Hilsenrath seriously.

The caveat is that treasury prices are not showing follow through this morning.

WTI crude on new lows. NG made new lows as well, which was expected.

Term structure, volume, and open interest suggest a bottom in each may take longer than previously thought.

Gold, silver, and copper lower.

S&P Outlook:
No need for any drastic actions until Wednesday in all likelihood. Simply too much at stake then to make many huge decisions beforehand.

Did not like seeing Friday's SSO tranche get pummeled so badly, but loved seeing TVIX out pace the loss by 10X.

The 2007.18 Fib target worked well enough -- S&P hit 2008.80 on Friday. Still not looking like the bottom is here.

The next interesting spot is a small volume shelf around the 1996 area. Then there is the 1965-1970 area which is Fibonacci 61.8% support.

At this point, 2042.35 would need to be reclaimed in order to even suggest that price may have put in a near-term low.

Additionally, bond pros will continue to say that junk bonds are not a problem right now and that the corporate bond issuance is strong. But junk is a proxy for risk. And right now risk is off. Not to be taken lightly.

However, the trend lower in junk and high-yield has been in effect since July of 2014. So perhaps a final washout could occur soon, but it could dovetail with a switch toward Risk On that might echo the current wave counts which suggest equity prices are in a reboot and are still ready for new highs.

In other words, it's a trading environment. A great one.

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