Coming Week: What Could Disturb The Expected Quiet?

Includes: DIA, QQQ, SPY
by: Cliff Wachtel

Here are the four most likely sources of volatility this week. We'll keep it very short and hope we can enjoy a quiet week, so here's a fast look at what might disturb the peace.

Barring any major surprises, this week should be very quiet due to a combination of:

  • Christmas holidays that will keep Western markets mostly or totally shut down until Thursday
  • One of the lightest economic calendars of the year

So the most meaningful questions for the coming week are:

  • What could disturb the quiet?
  • Are any of these potential "disturbers of the peace" likely to happen?

First, remember the context in which any move will occur. As mentioned in our recent article here on lessons for the coming week, the combination of strong technical resistance formed over the past decade and weak fundamental justification for a sustained break above that resistance mean that we're looking at very limited potential for a sustained upside move for the foreseeable future.

1. Fiscal Cliff: Deal Unlikely This Week

At this late date, a final deal is unlikely before year end. Here are the two most likely scenarios, neither of which are likely to produce notable moves this week:

Washington strikes an interim deal to avoid most or all of the scheduled austerity steps hitting. As we noted here, the current market is moving on very short term considerations, so any deal that extends beyond 4-8 weeks removes near term uncertainty as far as this market is concerned. If the deal defers more of the scheduled tax increases and spending cuts, then markets are likely to post at least a brief relief rally. If not, we probably see a minor "sell the news" pullback.

No interim deal is reached. Markets appear prepared for this. They have not moved much despite the lack of progress and high chance of no deal before January.

2. Low Liquidity

With so much of the world's big traders and trading desks off or manned by underlings, that low trading volume implies quiet moves unless there is a major surprise. That's unlikely from Washington. So where else?

3. Political Events In Japan or Italy

The other sources involve political decisions that are inherently unpredictable:

  • Japan: Headlines related to further Japan stimulus in the wake of last week's elections
  • Italy: Headlines regarding coming Italian elections

4. Calendar Events

The only calendar events that might elicit moves if there are major surprises include:

Thursday: US new home sales and consumer confidence

Friday: US pending home sales, Italian 10 year bond sale


This week is as likely as any to be quiet.

If you have the time, consider some key ideas mentioned here for the coming week and beyond.

Enjoy the likely quiet while it lasts.

Disclosure/disclaimer: No positions. The above is for informational purposes only. All trade decisions are solely the responsibility of the reader.