Weekend Analysis of the Markets: “My Eyes Are Up Here Edition”

The S&P 500 

After getting a big whipsaw premarket on the Jobs report, we then went on to make another big whipsaw in cash. Because of the strangeness of the structure, I de-risked (noted here). Now that the session has unfolded some more, I can note that we’ve only made lower highs and higher lows, and so it’s possible that we’re forming a triangle:

And all this wild unpredictable volatility is perhaps what we would expect to see in something like a triangle.

If so, it could be the Blue “b” of Green “B.” This echoes the thought from the other day that suggested we may be forming a “bigger” B-wave (discussed here). If we stay in any kind of contracting range early next week, I will try to sell some premium above and below the range depending on where we’re at in the structure, and I will hold my long SPY puts to see if we get a drop for Blue “c” of Green “B.” If we do, and if things still looks intelligible to me there (like, we’re not outright crashing), I will probably sell December puts against my long December puts, just making a bull put spread and we’ll see if we get that 200-day reconnect up there around 4100. I still think there is a good chance that will happen, and here’s why:

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The $VIX

We’re in this huge red wedge. Since we’re dropping in it, there is a good chance we may revisit the lower end of it. We could go all the way. And that can coincide with the S&P rallying to the 200-day. After that, it’s possible that all hell breaks loose and the wedge finally breaks out.

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The Dollar

The dollar is also in a wedge, but in this case, it’s pretty decidedly a bull flag or bullish wedge. It’s consolidating, and it may continue to do so. It’s possible for the wedge to become fuller, with a revisit of the lower bound, which would also coincide with another rally in the S&P (to the 200-day), and if it breaks out (up), it’ll be bad news.

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Yields

Yields were in something a bear flag the other day, and though it’s not as well-defined a structure now, it’s still a consolidation, and it can break down temporarily. If it does, that can be equity bullish, and if its rise is incomplete, if it rallies again after a drop, stocks may drop again.

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Bitcoin

And Bitcoin (last discussed here) still seems to me to be in a big (green) bear flag (those parallel rails). And it looks incomplete to me, and if it rallies, we should be in a risk-on environment.

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In Sum:

Nothing has really changed. I think there’s still a good chance for another segment to the rally. And we might trade sideways and down next week, and maybe rally the week after. Or something to that effect. There’s enough lined up in other instruments that can, in principle, tell the same story, too. So, I don’t see anything that glaringly contradicts such a path and I will see if this is what develops as we go.

I hope everyone has a nice weekend.