The strong rally that followed the Dec. 4 employment report is a distant memory. All the major index ETFs were hammered over the past five trading sessions. The SPDR Dow Jones Industrial Average (DIA), SPDR S&P 500 (SPY) and PowerShares QQQ Trust (QQQ) all declined between 3.2% and 3.8% on the week, while the iShares Russell 2000 ETF (IWM) was particularly hard hit, falling nearly 5%.
Some will blame last week's broad market weakness on the weak oil market, which fell more than 11%, while others will point the finger at the junk bond market, which, if measured via the SPDR Barclays High Yield Bond ETF (JNK), was hit for nearly 4%. Still others will point to the fact that breadth has been crummy for far too long. The bottom line is bulls were trounced, and without substantial stabilization in the junk bond and oil markets, I suspect the odds favor continued selling.
As far as Friday's auction is concerned, there's no question it was a rotten day to be a bull. With only 7.5% of the S&P 500 finishing above the flat line, one need not look at a breadth figure to know the selling was incredibly broad-based. And as you might imagine given the horrific performance of light crude oil, many of the biggest losers were tied to the oil patch. Stocks like Southwestern Energy Company (SWN), Williams Companies (WMB), Range Resources (RRC), Cabot Oil & Gas (COG and Chesapeake Energy (CHK) were all crushed for between 9% and 14%.
This week's trading is all about the Fed. As a reminder, the FOMC announcement, forecast and Fed Chair press conference all get underway Wednesday Dec. 16 at 2 p.m.
Given how horrid the overall price action has been, the optimist in me believes we might be set up for a decent post-Fed rally. But I'm sorry to say my optimism will be thrown out the window if the JNK and light crude oil continue to be so aggressively sold.
Moving on to Monday's E-Mini S&P 500 futures (Es) auction (March 2016 contract), we'll begin by respecting that price is beneath all short, intermediate and higher timeframe moving averages. Additionally, the Relative Strength Index (RSI) is solidly beneath the 50-center line. The takeaway from this is that short-term buyers should operate in shorter than usual timeframe frames, keep a tight handle on risk and avoid chasing any and all intraday price momentum. As long as price is closing beneath our shortest timeframe moving averages, the five-day and eight-day exponential moving averages (EMAs), we want to avoid chasing price momentum at all costs.
Given the lack of a strong low Friday afternoon (extremely limited selling excess was triggered), we'll open Monday's session by looking for any immediate downside continuation to find a buyer toward 1993.50. Should demand materialize and price recapture 2000.25 (Friday's value area low), we'll position ourselves for a trade back toward 2012-2013.
Failure to attract a buyer toward 1993.50 (very near the Nov. 16 swing low) triggers another strong wave of selling, this time targeting 1978.75 -1975. And while I wouldn't want to be too quick to catch a falling knife toward the mid- to upper-1970s, such a decline might be the short-term washout we need to kick-start a bit of a rally. This all hinges, of course, on junk bonds and crude finding a near-term bottom.
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.