Oct. opex and outlook for start of next week - ES.

Market commentary:

   Wednesday and thursday had some bad news out of europe, which is driving the market volatility lately.  Just take a look at the correlation between  euro and ES, and you can see the proof  of europe being in control of market direction;  you can pretty much predict the short term movements of  ES, with this correlation;  this is likely to continue until  2nd week, when the G20 leaders summit is over and we get definitive announcements, for the short term, about how much debt is loaded onto the banks, and how funded EFSF is going to be.

    So  the bad news out on wednesday/thursday is that merkel and sarkozy are not getting along.  Sounds like a bad marriage to me, and does not bode well for 2012 relationship.  Each party involved is asking "what's in it for me?"  rather than asking the question of  " until death we dont part ?"  So, the decisions involved on a day to day basis, in such a tough marriage are likely  to be pretty  tedious and drawn out.....this implies, it will take  more time to make even simple decisions (which probably take a day to make in china, because no one can question the central committee).   Western civilization is facing serious  challenges to the  current form of  capitalism - Big banks are global in nature, whereas there is no global  policy system in place, to control  these banks'  predatory  profit seeking nature.  Consequently, derivatives and wreckless trading by global banking system has resulted in destruction of many banks in US and europe, and passed on the virus now to europian nations. I am digressing.

Back to europe..... the headlines are pointing out the meeting this weekend between germany and france, and the meeting of  European leaders has been postponed to next week.  Sounds like bad news, but hidden inside is the fact that they seem to have agreed that EFSF funds will have to be leveraged to over 1T euros. This leveraging was initially rejected by  germany, but that stance has changed in last couple of days, and is the fundamental reason for some bullish moves lately. 

Technical  Landscape:

As i  starting writing this blog, emini spx futures (ES) is at 1215.25. Please see the chart, as it summaries my  outlook for  friday as well as the week ahead.  I think the highs of the week are already in.  Also, notice that in august as well as september, the direction reversed after an opex week.  People who are buying now are somewhat late into the action(on a short term basis) and we could see a pullback monday/tuesday. Clearly we are range bound, between 1180 and 1230. There is more downside risk than upside risk.  Considering all these, it seems better to find places to short, which will give a better risk reward ratio (always look for the risk reward ratio after you take a bias). I am forecasting a close on friday below 1210 on ES, with a good probability given to 1205 or below (due to weekend risk aversion). 

USD is likely to rise from current levels into tomorrow, as yen will be devalued by japanese announcements. It may be a useful tool for currency traders, to keep this bias.