2:05 pm EDT:  The ES bounced off the upper range of target support of 935 to 937 (low 937.25) and is consolidating the range.  Watch the next hour for a breakout one way or the other.  Most likely, it will be down and inconsequential, but a move up could garner momentum.

Click below for larger image on anchored VWAP bands. We’ve gone from S2 below VWAP to S2 above in a very short time.

Overall, it was a mixed report.  The headline figure for leading indicators rose by 0.7 to 100.9 for June 09, with May unrevised–both positive.  The coincident and lagging indicators continued their trend down, with previous months’ data revised for the worse–a bit negative.  The most important piece of information, the ratio of coincident to lagging indicators, did rise, with May’s previous slight decline from April being revised upwards so that we now have three consecutive months of an increase in the ratio–positive.  As we wrote on May 21 09:

The conference board released its leading, coincident and lagging indicators today at 10:00 am for the month of April.  We and many others follow the ratio of coincident to lagging indicators because an uptick has successfully predicted the month NBER officially marks the end of recessions within +2 months since the data was first published in the 1960’s.  We got that uptick today and note that the direction of the revisions for previous months was higher.  Accordingly, we would not be surprised to see May 2009 marked as the official end of the recession that began December 2007 and would expect July to be the latest month so marked.

So why are we hesitant that NBER will eventually mark May, June or July 09 as the end of the recession?  1) Ideally, the ratio would uptick more dramatically and be on improving coincident indicators, instead of not falling as quickly as the denominator, the lagging indicators.  2) The current situation is unlike anything since the start of the data going back to the 1960′s.  Accordingly, we can take this as positive for the economy, but with a grain of salt.  Also, as we saw with the 2001 recession, the markets can experience new lows long after a recession is over.

10:10 am EDT:  The 10 year hit is 50% retracement from June lows and the 30 year its 61.8% earlier this morning.  A break signals a likely retest of lows and much higher yields.  If the Fed is to defend long term interest rates from rising, it will need to do so over the coming few days.  Any intervention by the Fed would require a return to lower prices in equities and would at the least put a damper on the prospect of material new highs.

In the ES, 944.75 (old June closing highs) was the level to watch and has been breached only immaterially (945.50 high), with the 10:00 am Leading Indicators report retesting the level and now failing.  We will now likely retest at least the 935 to 937 value area and would not be surprised to see the high of the day in.

Update 10:14 am:  Would add to the above, that if we do break to new highs, we’re not top pickers as there will likely be too much momentum.

The Precise Take – Overnight strength into old resistance

The ES overnight has easily accepted value at higher and higher levels, which is a reversal from the probes last week into the 940 area that were rejected swiftly.  The general consensus is that equities are overbought and at least a small correction is due.  Accordingly, this would be the perfect opportunity to squeeze the few shorts holding on with stops above the June highs who think they may be able to exit gracefully at a lower price.  With Leading Indicators at 10:00 am the only scheduled news and any major earnings releases likely to be done pre or post market, we are looking to the first hour of trading to confirm this possibility.

As we write, the ES has posted an interim high at 944.75, which is the highest closing level this year on the continuous futures chart.  This level is key because it is precisely where the ES failed in mid-June after six consecutive days closing within a 6 point range.  A push through 944.75 is significant and a close above more so as it will signal that equities are truly prepared to push higher.  If the ES cannot push through 944.75 in the first hour, we expect a test of the daily gap/pivot area of 934.50 to 937.00 area.  Below that and selling will likely accelerate until 928.50.  New longs will likely enter between 922.25 and 928.50, especially at the lower end of that range.  Above 944.75, there is strong pivot resistance at 951.00 and last month’s high at 953.00 (Sep contract), then 956 to 957.50 including daily R3 and the high on the continuous futures contract.  Fading short above 944.75 is very aggressive, though shorts can fade an early test with tight stops.

Looking beyond today, as we wrote last week, we need to see…

Continue reading here.