Weekly Review and Outlook: Sept 18-22
Probably no ace up Powell's sleeve.
Weekly Wrap Up
Image 1. Wednesday’s Fed conference. Calvin and Hobbes.
Last week’s Outlook (September 11-15) opened with a comic to which I added the title ‘is 4500 enough rope’? Like all of my writing, part of it is a joke but the rest can be taken somewhat seriously. The question posed there was how far did the light buying have to travel to the upside before finding enough resistance to shake out weak longs, and just how far would we shake out?
Turns out, quite a bit, with the index closing the week close to the lows at… you guessed it, 4500. The question everyone is asking, well actually two questions, a) can buyers hold it here? and b) will the Fed hike 25bp on Wednesday?? While a) is somewhat contingent on b) in the sense that a surprise hike could call for a significant repricing event, selling activity early on in the week is not. Ultimately I lean towards a data-dependent Fed holding on a hike for now with strong language heading forward in the context of ‘we are not done yet and are monitoring closely.’ This could likely mean some churn around 4500 ahead of the meeting in the lack of selling initiative, or a possible repricing to the upside before Wednesday’s expected volatility.
Back to the prior week. Four days of balance led to a breakout on Thursday into some of our upper targets, the main one at 4571. Buyers fell short in Friday pre-market, topping off at 4566 before sellers put pressure on ahead of the open. Friday was a liquidation event rejecting the nascent breakout, trading to a new low on the week. This puts us back into a six-day balance (ESZ23 prices) in a five-week balance zone.
Eyes will inevitably be on continuation below the PWL early on this week. Sellers taking initiative can aim for a daily gap fill or a rollover gap fill (4461.75) below that. Conversely, a lack of initiative likely sees prices test last week’s value at 4525 despite a seeming edge for the sellers. Coincidentally, medium-term value (20D) is right around 4526. The week was balanced however we did leave some irregular structure behind on Friday which may want to get filled first - if so, potentially indicating some seller weakness after all.
Image 2. Prior week profile
Much like last week I will be eyeing 4500 early on, with gaps as possible draws on liquidity below. This could mean a rejection of prices above 4500 for now, and a much steeper hill for buyers to ultimately climb. I have levels 4507 and 4994 on either side, so 4500 will be a weekly shorthand while the former two can be used for intraday activity.
Image 3. Areas of balance and levels of importance.
Levels Next Week
Two important levels early next week are 4494 (LVN) and 4507, rendering weekly pivot 4500. Either party will need to initiative through these two levels for an early ‘tell’, in my view. We will be watching for reactions at or either side of these levels. Focus will then be on continuation to and through targets, eg gaps below and prior week value 4525 above.
VIX above 15 will be a good reference for seller strength. AAPL above 177 will be supportive of the indices, it was a major drag the week before. TSLA can be another proxy, with prices above 278 likely supporting ES into and above 4520.
4591 gap fill
4561/62 buyside liquidity / PWH
4544 balance high
4525 prior week value
4500 weekly pivot
4473 seller magnet
4461.75 contract gap
4447 sellside liquidity
4435 weekly low
a) Buyers supporting 4488 in RTH can aim to reclaim prices 4520/25. A daily close above can open a retest of 4544, with buyside liquidity around the prior week high 4562, where longer term. sellers are expected to step in. Sellers earlier at 4544 making a lower high would suggest seller strength.
Aggressive buying with short covering or very soft Fed language can aim for a potential gap fill to 4591.
b) Daily close below 4494 could see a fill of the contract gap 4461, below which buyers are expected to step in at 4447. A very aggressive sell could find support lower at 4414-24. Sellers will want to defend 4520 above.