Countertrend short of 896.25 was the day’s high, reached just before close, but 2 pt objective was not reached into secondary close, so position should not be held any longer.  

886.25 to 901.00 is maximum predicted overnight range.  890.75 to 898.00 is tighter predicted overnight range.

11:52 EDT:  The first chart below updates the workspace posted in Thursday’s morning commentary.  The IWM(small cap):SPY ratio has broken through the bottom of the consolidating wedge after it had broken the upside last week.  It looks now like it is simply in a range (shaded grey box).  The MDY(mid cap):SPY ratio is holding up much better.  The second chart shows an overbought/oversold oscillator for each ratio (yellow at bottom) that needs an uphook in each to have a confirmed oversold buy signal.  When this signal appears in all three after reaching the blue or red shaded areas, it is much stronger than any one individually.  We will udpate on confirmation, should it occur, and note that MDY (mid caps) looks the best poised for a rebound should it materialize.

Though the ES took out the overnight low by a tick (low of 882.00), it has rebounded and is trying to exceed the 888.25 level (61.8% retracement off day session’s range).  We will likely not see much volatility unless the day session range of 882.00 to 892.00 is broken one way or the other on volume.

The Precise Take – ES testing critical long term support

As expected the DPRK engaged in some saber rattling over the long US Independence Day weekend; however, the Kospi Index, having gapped down, regained its losses early.  Accordingly, with the Korean freighter about to return to its home port, we believe the short term disaster has been averted.

The US Dollar is stronger against most currencies except the Yen, and it looks like long term critical support for the Dollar has held on many of the crosses, notably, the AUD and GBP.  Money supply released at 4:30 pm Thursday shows continuing contraction in non-seasonally adjusted M2.  To counter the continuing claim that personal savings (admittedly defined differently by economists and the public), we point to the fact that total savings deposits at commercial and thrift institutions peaked the week ending June 15 2009, the same week that one weak NSF M2 peaked, with small-denomination time deposits having peaked in December 2008, and retail money funds  having peaked in January 2009.  With respect to total savings deposits, one week a trend does not make, and we must note that demand deposits and other checkable deposits have been in a clear uptrend, but there does appear to be a clear rotation of money into accounts where it may be immediately accessed, as opposed to laying fallow.

Today is a slow news day, with only the ISM Non-Mfg Index at 10:00 am and some Treasury auctions at 11:30 am and 1:00 pm.  If ISM disappoints, we could see further bearish reaction.  It would take an astoundingly bullish number to spook the shorts.

Early, 888.00 will be the first hurdle to clear for the longs in the ES, then the day-session-only pivot from Thursday of 893.50, which also coincides with a

Continue reading here.