Last week's political turmoil resulted in the President disbanding two advisory councils, the departure of Steve Bannon, and rumors that Gary Cohn might be headed for the exit. And if that wasn't enough, we also had the horrible terrorist attacks in Spain. If there was any silver lining at all, it was that the heated rhetoric between the President and North Korean leader Kim Jong-un seemed to cool.
While it's impossible to know how events will unfold between the U.S. and North Korea, we know Monday's solar eclipse is going to capture much of the nation's attentions. The bottom line is if you run a business and you're expecting folks to be particularly productive on Monday, you're likely to be disappointed. Barring a hard break of Friday's intraday lows, look for trading volumes and volatility to be relatively low.
The week's headline economic event is sure to be the annual Economic Policy Symposium, hosted by the Kansas City Federal Reserve Bank in Jackson Hole, Wyoming. While traders would love to hear Fed Chair Janet Yellen spell out exactly when the Fed is going to begin reducing the size of its balance sheet, the very best we can hope for is a cryptic change in her previous statement that the timing would be "relatively soon."
It's worth noting Yellen isn't scheduled to speak until 10 a.m. Friday, so traders will have all week to speculate over what will or will not be in her remarks.
European Central Bank President Mario Draghi is also scheduled to attend and speak at the Symposium, though he is not expected to announce any new policy initiatives.
As far as last week's E-Mini S&P 500 futures (Es) auction is concerned, the contract only lost around 0.6%. Unfortunately, that seemingly insignificant decline fails to tell the whole story.
Monday's bullish advance failed to stimulate sustained buying, and the repeated attempts to recapture the 20-day moving average on Tuesday and Wednesday failed miserably. Thursday's decline and Friday's failed bounce resulted in the contract closing beneath its lower Bollinger Band (BB) for two consecutive days, and left dip buyers in an uncomfortable situation. While buyers are certainly capable of pulling off an upside surprise, my current expectation is for upside rallies to be sold and a near-term test of 2400.
Moving on to Monday's Es auction, we'll treat 2428.75 to 2429.75 as our day timeframe pivot. All trading beneath that area encourages traders to auction prices toward 2420.75, eventually triggering bearish price continuation toward 2412.50 and 2400 to 2402.
Traders patiently stalking an area to buy the dip should continue to focus on the big figure (2400). Ideally, we'll see price break beneath 2400, then recapture the level on a closing basis. This type of set-up provides a clear-cut area to measure risk against.
A sustained trade above 2429.75 does not give buyers any sort of meaningful edge, but it does allow for a bit more buying toward 2438.50. Sellers don't want to see value migrate toward 2448.75 to 2449.75. So as long as any rally toward that area is short-lived (meaning value fails to keep up with price), we'd expect active traders to quickly begin fading the rip (with an eye toward new swing lows).
Any trading or volume profile related questions can be posted in the comments section below, emailed to me at firstname.lastname@example.org or posted to my twitter feed @ByrneRWS.