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Tuesday, December 13, 2011

Uncle Scrooge says, "Get those ducks in order!"


With today's Fed announcement came this press release:
http://www.federalreserve.gov/newsevents/press/monetary/20111213a.htm

As we now know, the Fed stated that:
"Information received since the Federal Open Market Committee met in November suggests that the economy has been expanding moderately, notwithstanding some apparent slowing in global growth."

The upshot of their December meeting was that there was no change to their policy from the last meeting.

What I'm hearing again from both the Fed and the ECB are (unspoken but implied) messages to their respective political leaders to find ways to deal with the slowdown in global growth...in other words, to "Get those ducks in order." The problematic economic ball has been thrown back to the politicians, both in the U.S. and in Europe. And we know how divided those houses are.

With that being said, it's my humble opinion that, for the next while, the equity markets will continue to trade within their respective ranges that are in play on the Daily charts below of the YM, ES, NQ & TF from their August lows to their October highs. I don't believe that the Fed is going to step in with any kind of QE stimulus as long as these markets trade above their August lows...and possibly even lower...with the caveat that as long as world economic and financial conditions remain at their current levels, i.e. without new financial crises erupting. With today's higher volume, we'll see if a market sell-off comes in tomorrow or in the next several days, or whether there is an appetite to add further risk before Christmas which could send these markets above their October highs.


On a shorter-term basis, I'd say that if these markets break and hold below their recent narrow range from December 1st, we could see a retest of their November lows, as shown on the 4-hour charts below. All 4 of these e-minis have made a lower swing high and lower swing low on this timeframe...however, the 50 sma (red) is still above the 200 sma (pink), and, as such, the moving averages are still in a bullish Golden Cross formation, which may keep price trading in this range.


Additionally, and in the short term, the YM, ES, NQ & TF are still trading under a bearish Death Cross moving average formation, as shown on the 15-minute charts below...as such, they are still subject to further bearish downside movement.


If Gold continues to sell off and the Euro continues to fall, I see little likelihood of any kind of major Santa Clause rally in equities...particularly if Gold falls below its next Fibonacci confluence level of 1590, as shown on the Daily chart below, and if the EUR/USD falls below a trendline confluence level of 1.277 as shown on the Daily chart below.



The VIX closed above the important 25.00 level as shown on the Daily chart below...a hold above that could send the equity markets further down...however, volatility has fallen dramatically recently...we'll see whether additional short-sellers step in here to take the markets down with conviction, or whether the markets just drift until next year. I don't imagine the big players, who are currently long this market, will want to give up their gains from the August/September lows too easily, but they may not be prepared to take on additional risk until next year.


In conclusion, as an intraday e-mini futures trader in this current market environment, I think the easiest and safest way for me to play the current market is to look for an acceleration in trading momentum either away from a "mean" on whatever timeframe I'm basing my trades, or towards a "mean." So, for example, if I were looking at the above 3 timeframes on the TF, and if I used the 50 sma as the "mean" on each respective timeframe, I'd see that it has reverted to the "mean" on the Daily, away from (below) the "mean" on the 4-hour, and away from (below) the "mean on the 15-minute. If the selling continues tomorrow on accelerating volumes (and higher volatility on the VIX), price could eventually drop to the lower Bollinger Band at around 666 on the Daily chart before, potentially, reverting to the "mean" on this timeframe...time will tell what happens.