8
Feb
Posted in Pre-open Analysis by Bob English |
The Precise Take – Markets quiet overnight ahead of slow news week
Leaders Analysis: The US Dollar Index advanced above, but then closed below strong resistance Friday, and is down marginally overnight. The inverse is true for the EuroYen as it usually trades in the opposite direction of the Dollar. 30 Year T-Bond futures closed over strong resistance and have backed off marginally overnight, with the yield finally breaking down below a long term trendline ahead of three large Note auctions this week. It looks as though the uptrend in yields will confirm a downward reversal on the first good auction this week. Given the recent international turmoil, demand should be solid. The leaders are the slightest bit equities bullish.
Medium Term Analysis: This is a relatively quiet news week with no top tier reports scheduled. Retail Sales on Thursday and Consumer Sentiment on Friday could move the markets a bit. Accordingly, any political or sovereign news will probably provide the impetus for the next major move. Barring that, today we expect range bound action. Should the ES be able to mount a minor rally, 1080 to 1083 will be the first major resistance area.
Trading Today: The ES has oscillated overnight roughly between the weekly and daily pivots. This range will probably be broken, but only nominally. Accordingly, the upper end of the projected range includes…
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5
Feb
Posted in Long Term Analysis, Pre-open Analysis by Bob English |
2:14 pm EDT: While we did get a more than ten point tradable bounce after hitting 1052.25 early, the second trip down to test the overnight low proved too much and the ES has sold down to just below monthly S1 at 1042.00. Next support is long term pivot confluence from 1033.75 to 1035.75, then volume support at the Nov 2 09 swing low at 1025.00 on the ES continuous futures chart. We won’t necessarily get there today, but probably some time next week.
The US Treasury is benefitting from this, as the 30 Year yield finally broke through long term trendline and moving average support, which will make debt service costs a bit cheaper for it on the 10 and 30 yr issues its auctioning next week. To put things in perspective, it took a 9% correction in equities to facilitate a 2% rally in T-Bond futures. For now, it looks like this correction will eventually reach 15% or more, which makes for at least a 980 (ES) downside target. That doesn’t mean there won’t be large up days, but the prevailing trade will be to sell bounces, and that will likely last for several more weeks.
5
Feb
Posted in Intraday Analysis by Bob English |
9:45 am EDT: The ES has already sold off to weekly S1 (1056.75) pre-market and opened in between the 4:00 pm and 4:15 pm closes. This changes the game plan a bit as, any contrarion benefit of fading the gap is gone. If the ES heads lower, we should get a tradable bounce somewhere 1050.50 and 1052.25. However, this is a slightly agressive long because it is below weekly S1. To the upside, we still like 1068.00 to 1069.00 as a possible short.
5
Feb
Posted in Pre-open Analysis by Bob English |
The Precise Take – Equities trying to hold on after mixed Employment Situation report
Leaders Analysis: The US Dollar Index has been on a tear and came within one cent of our 80.44 to 80.54 target overnight, from which it has backed off a bit. If it is going to take a breather, this would be the level from which to do so. Correspondingly, the EuroYen had its biggest down day since July and has bounced from strong long term pivot support. 10 Year T-Note futures have broken through resistance, but 30 Year T-Bonds have not been able to push through. Despite the strong equities bearish movements over the past two days, given the overbought/sold status of the Dollar and EuroYen at strong support/resistance, the leaders are equities neutral.
Medium Term Analysis: The headline numbers for the Employment Situation came in with a better than expected unemployment rate of 9.7% (best since August), with a monthly drop of 20,000 payrolls, which is toward the lower end of expectations. It looks like the report will be spun as bullish. After yesterday, bearish sentiment has taken hold strongly and any rallies will be met with both long liquidation and strong shorting. A major hedge fund created to take advantage of the unique opportunities presented in late 2008 announce it would close recently, stating that the easy money had been made. Accordingly, the general profit taking in the markets can fuel a more substantial correction in equities in the coming weeks.
Trading Today: As we write, the ES has rallied ten points after hitting day-session-only S1 on the report. As it is now trading above yesterday’s close, we must keep in mind the possibility that this is a false rally that will be reversed after the open. What mitigates this possibility, however, is…
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4
Feb
Posted in Intraday Analysis by Bob English |
10:34 am EDT: The ES sunk quickly to the lower end of the projected range inside the first 15 minutes, which was a warning of a possible trend day down. So far, that is materializing, though the ES has found support at last week’s settlement of 1070.50. If this does not hold, last week’s low is the next target (1066.50), then the weekly S1’s from 1056.75 to 1058.00. 1080.25 is a sell area.
All the leaders are confirming equities weakness. Depending on tomorrow’s report, however, we could get a bullish setup on the open.
4
Feb
Posted in Pre-open Analysis by Bob English |
The Precise Take – Equities down overnight ahead of Employment Situation Friday
Leaders Analysis: The US Dollar Index rallied yesterday and was able to clear strong resistance overnight, trading up to just shy of minor fib resistance of 79.75. It looks poised to rally to a long term pivot and fib target area of 80.44 to 80.54 over the coming weeks, which would weigh on equities. Indeed, there has not been a strong down day in nearly a month, and that’s probably what it would take for the ES to clear the 1109 level. The EuroYen is down overnight and looks set to test the 124.670 pivot low. The leaders are slightly equities bearish, the “slightly” only because the Dollar could stall at minor resistance.
Medium Term Analysis: The consensus for tomorrow’s Employment Situation report is a characteristically wide -40,000 to +75,000, with the usually on-point Goldman Sachs estimate at minus 25,000. We mentioned earlier in the week the annual benchmark adjustment will be applied retroactively to the preceding year’s numbers and will be net -824,000. This may or may not get attention, but our understanding is that the supranaturally bullish [small business] birth/death model will be adjusted going forward to be less bullish, which makes the statistical recovery in jobs for 2010 a bit less likely. Short term, the opening gap on an Employment Situation report date often, but not always gets reversed, such that a gap up would end up with a lower close and vice versa. Given that these dates also tend to mark equities reversals, a slight gap down near the recent lows in the ES would give a non-intuitively bullish edge for the day and coming week. A notable exception is the July report that gapped down strong near lows and did not bottom until three days later.
Trading Today: As we write, the ES is poised to gap down below yesterday’s low and has traded below the daily S2’s. The upper end of the projected range is 1093.75 to 1096.50, which contains today’s value area along with several other forms of resistance. However, the daily S1’s in confluence with yesterday’s low, from 1090.50 to 1091.50 is a potential reversal area where we would consider…
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3
Feb
Posted in Uncategorized by Bob English |
The Precise Take – Equities recovered a bit yesterday, but now encountering strong resistance
Leaders Analysis: The US Dollar Index sold off but subsequently bounced strongly overnight, the EuroYen has continued its advance, and 30 Year T-Bond futures are down marginally, but consolidating. All in all, the leaders are equities neutral
Medium Term Analysis: The ES had a bullish showing yesterday, but has advanced enough to get shorts interested. It will need to clear 1109 to avert new lows. Estimates for Friday’s Employment Situation are generally negative; however, the ES has a chance to rally on a consensus number.
Trading Today: As we write, the ES is breaking down through strong support that includes the daily pivots, closing VWAP, and a long term high volume level, from 1093.50 to 1094.25. Below that there is virtually no support to…
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2
Feb
Posted in Intraday Analysis by Bob English |
11:14 am EDT: The ES has retreated a bit after it exceeded the monthly pivot of 1094.50 (not 1094.00 as reported in the last post) by three ticks. Importantly in this case, the monthly pivot in the cash S&P 500 of 1098.64 was missed by ten cents before the retreat. If the ES can hang around above day-session-only R1 at 1089.75, it has a chance to test the monthly pivot again and possibly break through later in the day. Otherwise, we would not be surprised to see a move to the lower end of the projected range from 1079.50 to 1080.25.
2
Feb
Posted in Intraday Analysis by Bob English |
10:36 am EDT: The ES is breaking to the upside as we write, likely as a result of the schedule Geithner/Volcker testimony of which we warned. If the monthly pivot of 1094.00 is exceeded, the next upside target is 1099.00, then strong resistance from 1107.25 to 1009.00.
2
Feb
Posted in Guest Post, Long Term Analysis by Bob English |
In this post I want to update briefly the previous warning on copper, followed by some observations on the Commitments of Traders (COT) report for the S&P 500 and Dow Industrials. Finally, I want to return to a pattern in the European indices which, according to the previous post, was reflected in China’s Shanghai Composite.
Update on copper
Those who read my previous post warning on copper will know again how accurate this most recent Topfinder warning was. The key is in fitting TB-Fs correctly. When it warned, the indicator was 99.2 percent done and there was some very noteworthy data too on total open interest readings and normalized Commercial net positioning values from the Commitments of Traders report. Copper began its decline the following day and has fallen 8.7 percent to $6,750 a tonne since. The COT report was warning that copper had run well ahead of market fundamentals and we’ve seen similar declines since in other industrial metals such as zinc, lead and aluminium. As ever, however, timing is fundamental and the Topfinder/Bottomfinder’s signals are often astonishingly accurate.
The common view now is that there’s very little technical support for copper falling at least another 8-9 per cent should the downtrend gain momentum. However, Figure 1 is an updated chart of copper showing several displaced Midas support curves, with the heavy magenta curve the expired Topfinder, the blue line the November 09 trendline (broken), and the light red line the 200 day moving average. True, there’s a lot of support here, but that Topfinder and the November trendline were Intermediate trend breaks (the Intermediate trend = 2-9 months), so we should at least expect a contrary Intermediate size move as a result.
Figure 1
In the last post on copper, it was suggested that the likely top in copper was probably coinciding with down moves in China’s SE Composite. In fact, Asian equities have been falling consistently over this period, with the MSCI Asia ex-Japan reaching a two month low. China increased its bank ratios as expected and its increasingly tougher stance on monetary policy has shouldered much of the blame for this decline in equities along with the carry unwinding implications of a strengthening US dollar.
The S&P 500 and the Commitments of Traders report
In a couple of posts over the weekend, David drew attention to several volume-based indicators which were warning of heavy distribution and that even though the Intermediate term Topfinder was 83 per cent done, other Midas-based and trendline-based analyses were indicating that the trend could well be over.
In Figures 2 and 3 I’ve included COT report data showing that total open interest in both the Dow and the S&P futures is at its lowest since 2000 levels (just off the chart) when we were last approaching a Secular term top in equities. What’s fascinating about current net positioning data in these two equity index futures markets is that total open interest being virtually at zero (!) is reflected in the net positioning of the Commercials (hedgers) and NonCommercials (large funds and speculators) also having virtually no commitment in this market.
In contexts such as this, especially at an Intermediate term top, we’d expect to see the funds net long and the hedgers net short (take a look, for example, at their positions in early 2008), but the funds have had virtually no long positions in either market since last March and they actually started shorting it during its first significant pullback — a strong indication of how edgy the funds were at this time, even on limited market commitments. This actual level of low-lying risk appetite in the large funds and speculators is in stark contrast to other fundamental indicators such as the VIX and the narrowing credit spreads as a result of the take-up of high yield (junk) bond issuance. At one stage not so long ago the fortunes of the US dollar were also heavily linked to increasing risk appetite in equities. The COT report since March 2009 emphatically shows that large funds were not net long US equities, since there has been virtually no reflection of risk appetite in these futures markets.
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Also, check out David Dawkins’ weekend posts on the S&P here, here and here.
