Updates for Monday December 18, 2023

Click here for Signal Trades spreadsheet.

Updates 12:20 AM ET - Monday

​Upcoming key events
Volatility Products Expiration (VIXEx) on Wednesday may accelerate the quick spike in VIX. PCE Price Index report on Friday will be closely monitored as this is supposed to be the Fed's preferred measure of inflation.  But most market participants are focused on the first cut of 2024, and are making bets on this assumption.   Read more here.

​Earnings this week (Chart courtesy of Earnings Whispers)
Earnings seasons for 2023 winds down this week.   

Earnings reports will start back up in earnest about mid January.   Earnings dates for the Magnificent 7 are: 
TSLA (1/24);  AAPL (1/25);  MSFT (1/31);  META (1/31);  GOOG (2/1);  AMZN (2/1);  NVDA (2/21)

These major earnings dates combined with FOMC rates announcement on Jan 31 means the last week of January into early February potentially will have a lot of fireworks.

Key S/R levels
The levels have not changed because ES NQ RTY have been stuck in a narrow range after surging up post FOMC on Wednesday.

VIX:  quick spike to zone 13.3 - 14.3 likely

• VIX has been basing since Dec 12.
• VVIX (volatility of VIX) has been basing since Dec 8, and spiked substantially on Friday Dec 15.
• VX futures has been basing since Dec 13, and had a small spike on Friday Dec 15.

Based on this pattern, the odds of VIX spiking quickly up to the zone 13.3 - 14.3 are high. With stock indices forming topping candles since Dec 13, this implies the possibility of a small to moderate dip for ES NQ RTY happening this week.

• ES NQ RTY are likely to tag S1 if VIX spikes to 13.3.

• ES NQ RTY are likely to tag S2 if VIX spikes to 14.3.

Breadth is still positive
The daily chart of NYSE McClellan Oscillator below shows that breadth is waning slowly, but it is still positive.   Therefore, there is no under-the-hood bearishness that suggests a big sell-off is going to happen for ES NQ RTY.   A small dip is possible, but a huge sell-off is very unlikely.

Appetite for risk has peaked short term
Junk bonds (ETF: JNK HYG) daily charts show topping candles formed after FOMC on Dec 13.  This pattern is similar to the topping pattern formed on Feb 2.  Junk bonds peaking is a very early warning that risk appetite may have peaked for the short term. 

However, this does not necessarily mean that ES NQ RTY are going to drop sharply in a steady selloff.  As we said above, ES NQ RTY are likely to dip, but there needs to be more confirmation from junk bonds before this becomes a bearish signal for stocks.

​Our personal trade plan
In preparation for Friday, we wrote: "We don't plan to day trade UVXY on Friday, but it is a viable day trading option."   This turned out to be a profitable setup.

If UVXY retests the low of Friday, we will enter UVXY to capture its rise as VIX spikes to the zone 13.3 - 14.3.

We also plan to enter SVIX when VIX reaches about 14.3. After VIX spikes, we expect VIX to grind down to around 11, which will provide a price boost for SVIX.  Note that even if VIX ends up basing at same low of 11.7 instead, SVIX will drift up some amount due to contango.
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​Click here for Signal Trades spreadsheet.

Disclaimer
The information presented here is our own personal opinion. Consider it as food for thought.  We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections.  You are proceeding at your own risk if you follow our trades.