Preview of Jan 12-16: Risk Aversion Back En Vogue

Sunday January 11 - John Netto - The combination of the sell off in USDJPY (Dollar/Yen Cross), S and P 500 closing on its weekly lows, small caps underperforming large caps, and the wide spread between short term implied volatility and the 3 month realized volatility all suggests this could be an ugly week for the equity markets. We will be paying particular attention to the EURUSD, AUDUSD, and GBPUSD cross and see if the currency markets use these as a proxy for a resumption of the downtrend that became the prevalent driver in Q3-Q4. Last week's Netto's Numbers blogs pointed out 133.90 as a key inflection point in the EURUSD along with 94.08 as a key turning point in the USDJPY. This week those are the points of control and if we stay below them, maintain a short posture in your positions until we hit 130.80 on EURUSD and 8820 on USDJPY. The prospects for the ES look equally soft, with 898 being the point of control and a downside target of 850 that can be realized within the first half of the week. We'll be looking at the March 900 puts as a nice way to play a prospective move down. Agriculture futures continue to pound the upside with the March Soy Bean contract closing at 10444, March Wheat at 6330, and March Corn at 4122. These aforementioned themes will dominate my trading perspective this week… . . . (to read the remainder of this article, please log in below.)