> While it is constructive to see technology rotating back into the Leading quadrant vs. the S&P 500. Friday's session saw the technology/utilities ratio break down rather meaningfully in favor of the risk aversion side of this equation (see pg 9).
> The VIX is above its bearish short-term stop at 28.70 this morning. In order for increased volatility to be sustained, however, the VIX must close above this level.
> As long as SPX 3324 holds, we have to respect that the seasonal pattern does not peak until Wednesday, and that the potential for a squeeze-related rally to 3445 exists during this window. > DXY is testing its bullish near-term trailing stop at 93.52 as of this writing.
Some Quick Thoughts:
As someone who is more passionate and sensitive than the average person, I often find it difficult to leave my emotions out of the decision-making process when trying to predict markets. As I am sure many of you may be struggling with at this time, I simply find it incredibly difficult to grasp the fact that the broader equity indices are at such lofty levels at a time when small businesses are shuttering left and right, food lines across the country are growing exponentially, and countless people in my own inner circle are either losing their jobs or seeing their hours drastically reduced. As a "market" purist, I also struggle with the fact that people still call this a "market," when all the headlines suggest that equity futures are higher this morning due to a growing belief that an increasingly likely Biden victory will bring far larger stimulus (i.e. yet another massive round of market manipulation to put lipstick on this pig).
While price discovery has been dead and buried for years, we must play the hand we are dealt. Right now, that hand involves a cap-weighted benchmark S&P 500 index that acquired bullish near-term footing last Wednesday. Since the seasonal pattern does not peak until this Wednesday, it remains our view that participants must be open to the idea of an upside price surprise during this short window. SPX revealed its respect for the new bullish short-term trend when Friday's panic selling stopped right at the new trailing stop of 3324.14. As long as this level holds, we have to respect the potential for a squeeze-related rally that retraces more than the 50% of the 09/02 high to 09/24 low that has already been retraced. Should this occur, we will then get to see whether high yield and technology sector vs. utility sector lag are still showing the worrisome lag that they have been of late.
This week should prove to be another busy one, with the U.S. Vice-Presidential debate Wednesday night, Fed Chair Powell’s speech Tuesday on the economic outlook, the release of the minutes of the last FOMC meeting on Wednesday, and $110 billion in 3-, 10- and 30-year Treasury auctions Tuesday through Thursday. This is an abridged version of our premium content. If you'd like to have content like this sent to your inbox each morning, please click here to sign up for a risk-free, 2-week trial (no credit card required).
Please follow us on Twitter @xtractanalytics