The lack of volatility has created a tightening in the S&P daily price range. The tightening was evident in the range narrowing between the highest plus ticks and highest negative ticks. This scenario always precedes directional moves of magnitude. The market is entirely contained and lulling people to sleep. Generally, the first three weeks of January into Expiration Friday has heavy volume and volatility. However, it has not been the case so far, but be very alert. This market is a very susceptible entity. Monday morning’s bond rally was very suspect, in that it had manipulation written all over it. Once the manipulators ran out of fuel, the prices stair stepped downward. Once again the night session provided the rallying and Tuesday’s day session was blasé'. High plus tick was not present--indicative of a trend up day. There is a suspicious nature to these rallies. Once the underlying push is withdrawn, there should be some trend down days. Too little volatility in the day session means that this market is poising for some fireworks.
Why does this market choose to move its greatest amount in the Globex session? Has our domestic market and day trading become less than the overnight? It is mysterious, but will eventually return to normal. It appears that the bonds are the source of monies that are used to buy equities. If you noticed the bonds declined, and then once again maintained while the S&P has a perpetual euphoria. There is so much distortion between the prices of the 30-year bonds and the S&P futures. It would take a 5-10 point decline in the bond prices to match where they were in months past.
I watched the tape all Wednesday and did not witness what I expected. Basically we are not seeing sell programs materializing, but the sideline money is totally bored. What a market, but one that must be viewed with a wary eye. This lack of energy has been the moniker for 2012. An abrupt change may require a catalyst. Wednesday afternoon there was a five-minute period of time where the entire range was only 1/32 in the bonds. I point this out not because of the narrowness, but because this is virtually impossible!
All of 2012 has been neutral to better than expected news with no shock surprises from Europe. The old adage, “If it appears too good to be true, it probably is” would fit the recent market scenario. Many traders are superstitious. Would Friday the 13th display eccentric market activity?
I have mentioned a 30-50 point pull back is essential to keep this market healthy. Was JP Morgan enough to change a market that only saw bullishness? The farther it extends, the greater the pullback becomes. Some reality crept into Friday’s market--a sign of a gradual metamorphosis. Our short-term advisory trade was not initiated. The bonds moved through previous resistance as it journeyed above 145. The foundation under this market is air.