11:41 am EDT – ES has pushed impressively through daily R2 and some Fib confluence, but we don’t recommend new longs with entries above 886 unless/until the ES pushes through critical 893.25 resistance–would wait for pullback to 883.00.  Aggressive shorts can fade 890-892 with tight stops.  Also, NQ Bank and XLF are at resistance, so we could see an intraday reversal in the financials.

Shorts defended the 50% retracement from last Tuesday’s swing high to the tick (881.75–also the bottom of our breakout bullish area) prior to open and a failure to breakout after the open has lead to a retest of the 871.25 overnight point of control in confluence with a 61.8% retracement of the Globex range.  The CBOE all issues put:call ratio is down sharply suggesting that traders aren’t worried about starting Friday below current lows in the 865 area.  The ES will need to break above the 882 area to gain momentum and faces serious resistance from 886 to 893.  Though 883.50 is till a valid countertrend short with a two point stop and profit target, it is now more risky as it is close to current day highs and could see a volume surge.  Should the breakout fail here, we would expect a return to at least the day session low of 871.25, and more likely overnight lows near the critical 865.50 level.  If we are to get new lows this week, we expect them today or by 10:30 am tomorrow at the latest, with a lesser chance of them coming Wednesday into Thursday’s 10:30 am opening hour.

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The Precise Take – Quiet news day beginning earnings/options expiration week

Besides the Treasury Budget released at 2:00 pm today, there is not much in the way of scheduled news to move the market.  Major reports this week include PPI and Retail Sales tomorrow, CPI and Industrial Production Wednesday, Jobless Claims, Treasury Int’l Capital (TIC) and Housing Market Index Thursday and only Housing Starts on Friday.  CPI and TIC will likely have the most influence on the bond markets as inflation and demand for Treasuries are assessed.

Traders will also be positioning themselves ahead of earnings announcements this week by Goldman Sachs on Tuesday, JP Morgan on Thursday and Citi, BofA and GE on what should be a very interesting options expiration Friday.  In addition, there are two permanent open market operations (POMO) this week, one Tuesday and one Thursday.  We will update later today and tomorrow morning with an analysis and strategy.  With record profits expected by GS and JPM on these dates (thanks to Bill O’Nair for pointing out this temporal confluence), we would not be surprised to see a short covering rally with an upside target of 915-920 into Thursday’s close with today and Wednesday statistically being down days (though we must pay respect to the bullish overnight recovery) and Friday currently up for grabs.  Accordingly, we begin the week believing the shorts are more likely to get a scare this week than we were last week and have a potential 915-920 as a target into Thursday’s close instead of only 901.  If the week closes over 920 (unlikely), we could see another short covering rally to at least test highs in fear of head and shoulders failure, though a move over 930 is need to confirm.

Overnight, the ES tested last week low of 865.25 to within a tick (low of 865.50), but has rebounded to test the 877.25 overnight high as we write.  We’re willing to fade Friday’s high and daily R1 at 880.00, but will be bullish above.  There is much resistance between 886.00 to 893.50, so we doubt the market will be able to clear it today unless there is a surprise announcement.  To the downside, we would buy the…

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