Macro Wrap – Moment of Truth, $SPX, $SPY

by Enis May 31, 2013 7:26 am • Commentary

While back and forth volatility has picked up, SPX futures have actually been having an “inside” week, not breaching the high or the low level set last week.  We seem to be approaching the moment of truth though, illustrated by the wedge that has developed in the SPX futures over the last 10 trading days:

10 day intraday of SPX June13 Futures, Courtesy of Bloomberg
10 day intraday of SPX June13 Futures, Courtesy of Bloomberg

Ok, not a perfect wedge, but imagine I’m drawing with a crayon.  This back and forth action has resulted in neither the bulls or bears winning the battle this week, but I anticipate a break of the wedge either higher or lower will be enough to declare the winner, and expect a fast move in the direction of the break.  Traders have become more emotional as this see-saw has continued, particularly given the overall market backdrop:

  • All-time highs in the S&P 500 index, enough said
  • There has not been a selloff of 5% or more in the past 6 months, leaving bears wary and bulls confident
  • Commodity and currency markets have been moving for 2 months now, mostly with commodities lower and the dollar higher (more on this dollar theme later today, when I’ll do a Chart of the Day post showing just how much the dollar has moved vs. emerging market currencies)
  • The Japanese stock market has become extremely volatile, down 15% in just the past 8 trading days.  Nikkei Futures made a new low this morning (after their daily session closed).

A longer-term wedge of indecision has developed in the crude oil market as well, which was deftly pointed out by Corey Rosenbloom at

Screen Shot 2013-05-31 at 7.19.41 AM

Not a perfect wedge here either, but worth noting.  Looks like it’s decision time for the economically sensitive oil market as well.

But I’m most focused on the S&P 500 index.  True confirmation of a break lower in the SPX would be on a move below 1635 in SPX cash, which could lead to prior buyers bailing, and more selling from those who set trailing stops.  A move above 1660 in SPX cash would probably lead to another round of short covering and new long buyers excited to play another break higher.  Watch for a break in these wedges that leads to a rapid move.  It could decide the risk-on or risk-off environment of the next month.