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Week of Jan 14

The first week of the New Year is in the books!

Last week, we retraced the entire sell-off from the beginning of the year. As we enter a more volatile regime in the markets, I will be switching focus from the Nasdaq to the S&P 500 as it has much "cleaner" structures and is the most liquid market on earth aside from bonds.

I have covered my shorts and am now looking to add longs to the market once we start getting a proper structure shift to the upside - I will outline initial targets down below.

DXY:  Last week, DXY closed the week UNCHanged. I am still looking for a higher move in DXY as per our post last week.

Energies:    I still don't have a good grasp on what oil is doing. I am bullish on DXY which is bad for oil, but we also have mid east tensions so I am staying away from energies for the foreseeable future.

Interest Rates:  If we focus on the 2/10 curve, we can see that the bond market is starting to un-invert. This curve is recovering from a RECORD depth & duration inversion - but the spread is still negative for now.

Stock indexes initially will not care why the curve is un-inverting initially - and thus stocks will rally. It's only once the curve is positive, we can expect a panic in markets, but we could still be a few months away from that.

VIX:  VIX ended down on the week -4.9% as it was filling some gaps that were left open from last week during the index sell of (VIX trades inverse to SPX). For now - nothing has really changed from our perch. There isn't really any "fear" in the market which could lend the indexes to drift higher due to the positive drift effect - never short a dull market!

SPX - We are switching over to monitoring the SPX instead of the Nasdaq moving forward.

While we all love the volatility the Nasdaq provides, it is REALY whippy and prints large wicks due to how illiquid the index is. The SPX on the other hand, is the most liquid market on earth outside of the bond markets, and respects our models VERY well and clean. We have had a MUCH higher strike rate trading the SPX compared to its wild sister - the NDX.

An added benefit is that the SPX and the VIX directly correlate - so we are able to use the VIX with a much higher degree of confidence compared to the Nasdaq.

Lets start with the yearly chart of SPX;

For 3 years now, we have gone sideways. We are the same price level as we were in Jan of 2023.

Some could call this a "bull flag" on the yearly chart, and they would be correct.

Quarterly SPX: Here is the quarterly chart of the ES March contract. It is now a completely balanced price range and we have no real reason to go lower in search of liquidity from here. For me - the bias is up. If there is no downside liquidity driver, the market will default drift higher due to the never-ending inflows to the market.

Weekly SPX:   Here we can see that we made nATH on the March Contract (still about 80 pts shy on the cash $SPX index). The 1st week of 2024, we dropped to the 50% zone of that weekly FVG, and bounced right where bulls needed to. From here, a FIB extension of the move from October lows through the correction seen last week, one could argue for SPX to reach for 5300 area.

Daily SPX:   Global markets are flying - plain and simple. The Nikkei is at 34 year highs, Europe is up, and the US is prepping to launch it seems.

One thing I will note is that we are starting to see the Daily Bollinger Bands compress - this typically precedes the start of a trending market. We filled the lower daily FVG on Friday, and have purged all the inefficiencies of the week -the market is balanced and ready for higher IMO.

For NOW- we are in wait and see mode and are flat the market. I am slightly bullish on SPX from the Higher Time Frame structures, but we need to see a breakout and confirmation to really get long the market up here from ATH.

So here is the setup for this week;

  • ES corrected last week into a weekly FVG and has now completely recovered - you MUST respect the strength.

  • The VIX is now balanced to the downside - but we will need something to scare it higher or they will just keep bleeding it to death lower.

  • ES is now fully balanced from the yearly/quarterly/weekly charts - I am bullish SPX here for nothing more than the default drift higher.

I'll keep yall posted - We'll be watching.

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