Last week’s price action in the SPX , down about 1.8%, capping an almost 4.5% decline from the Aug 2nd all time high had the makings to the be the start of something real, despite what was relatively anemic volume prior to the long holiday weekend. The week was marked by new 52 week highs in crude oil, new 2 month highs in Gold, a bounce in bonds and the VIX closing at 2 month highs. It appeared risk assets were poised to move this week, one way or the other, as all eyes would be on potential bookending of 2 monster events for the markets, airstrikes in Syria (possibly as soon as this past weekend), and Jobs data in the U.S. on Friday that many believe hold the key to whether or not the FOMC signals a slowing of QE at their Sept 17/18th meeting.
Friday’s Treacherous Technical Set up:
Volume or not, the SPX closed at a fairly precarious technical spot on Friday, right on the uptrend line that has been in place since the lows in November of 2012.
Equity Gains Week To Date:
As of 7:30am Tuesday morning, the impending disaster of a correcting SPX appears to be averted for now. President Obama’s speech in the Rose Garden on Saturday, suggesting that he is ready to strike Syria, but going to wait till Congress has time to “debate” the topic, coupled with some slightly better than expected manufacturing data in China sent global equities on a healthy relief bounce on Monday.
-The Nikkei closed up 3% overnight, capping 2 gains of ~4.5%, while the Hang Seng gained about 3% in the same period, (the Shanghai Comp continues to lag adding only about 1% since Friday’s close).
-Europe was up on sympathy, with the Euro Stoxx 50 up nearly 2% on Monday, and basically flat today in front of our data expected out shortly.
-Heck, even Brazil’s Bovespa rallied 3.65% yesterday.
From where I sit, the reasons for the last week or so of equity market weakness not only still exist (despite the early week bounce), but in some ways could find themselves even heightened this week as President Obama has apparently backed himself in a bit of a corner with the situation in Syria, while this morning’s manufacturing data and Friday’s Jobs data could hint to the near term course of the Fed.
While the VIX closed Friday at 2 month highs, as expected before a long weekend, the index gave up most of the early gains but still closed green. With the SPX set to open up close to 1%, the VIX should get clobbered at least in the early going. It will be interesting to see just how willing traders/investors are to part with protection. If the VIX stays bid, I would be surprised to see a runaway bounce in U.S. equities, 1650 in the cash SPX should serve as interesting short term resistance this morning.
Also keeping a close eye on Bonds as they caught a bid last week after what seemed like months of steady declines. A flight to quality, or a pushed off Taper? Neither scenario seems all that positive for equities in my opinion, at least for the near term.
Make no mistake, markets are jittery and the quick drop in the futures and European equities around 5am on a false headline about “objects” flying towards Syria, may be the sort of spoiler for price action later on this week. So just as pressing Friday’s lows on the short side seemed a bit treacherous given the sort of coin flip outcomes of global events, buying today’s opening could be equally as hazardous.