Risk Off Ahead of the Fed?
The S&P is pulling back with the Fed on tap
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Our View
I told the PitBull that the Friday expiration rips all have one thing in common: They are 99% squeezes and 1% new buying. After watching the rally and then the late selloff Friday and yesterday's drop, I'm convinced that until the mutual funds and institutional accounts start stepping up in a bigger way, we are bound to see more of the same price action.
Just because we have a new year on the calendar does not mean we have a new market to trade.
When the option premium sellers and future short sellers get too short and the index finds its footing late in the week — aka, the setting up for a Fry-day — the algos know the short sellers are off base and the bots take over the tape. Most of the time the conclusion is a rip higher that actually adds little to support to the markets.
If you get all bulled up, it’s very difficult to watch the ES rally almost 150 points in just a few days, then watch it sell off 75+ points while still maintaining the same view.
Our Lean
This week has a lot of twists and turns. It's the end of January and the first trading days of February — which matters from a fund-flow perspective — there’s a boat load of big-name earnings, the Fed's two-day meeting and the January jobs report.
As for my personal opinion, it's hard to deny the ES has been going up, but the push up followed by the recent pullback is pretty much the same pattern we have been seeing for months, rally and fail. It's like the ES can rally, but not get away from its old patterns.
Our Lean: