ES has rallied into the 61.8% fib retracement from the August high and we are in a cool-down period. So far the cool-down/pull-in has been choppy but quite tame and on lower volume. Friday’s action was choppy and sporadic, which was no surprise considering it was November’s Opex (options expiration calendar). With the November Opex behind us we look into next week, which is likely to provide low(er) liquidity being a Holiday shortened week.
If this is just another bear market rally, I would not except much more upside on ES than the major trend line (white), 200d moving average (red), and YTD VWAP (yellow), all of which are condensed between 4065-4100. We all know the market has a way of providing max pain, and that area has potential to be the 78% retracement level around ES 4150 for the bears:
Key levels I’m watching next week to open up further downside is the anchored V-WAP from the CPI data released on Nov 10, which is currently around ES 3968 (orange line). Price below this AVWAP would mean buyers that chased after the CPI data was released are trapped and could open up a wave of selling:
The VIX curve has become a bit complacent here so I’m on watch for a reversal. However, keep in mind a complacent set up in the VIX curve is a condition, not a trigger. This year inflection points (tops) have formed anytime the 9d-1yr curve has widened below -10. VIX curve is currently widening with 9-day VIX minus 1-year VIX at -10.54 (red line, bottom pane), and 9-day minus 30-day VIX at -4.77 (blue line, bottom pane):
VIX options (crowding) data is also bullish (which would obviously be bearish for ES/SPX).
The DXY’s recent dip has provided a pressure relief valve for risk assets. However, we currently have bearish options market positioning on the Euro, Japanese Yen, and Swiss Franc. With DXY at the bottom end of its volatility range, any weakness in the Euro/Yen will drive it higher – which would likely not be a good thing for risk assets. Again, this is a condition, not a trigger.
Happy Trading!