The Precise Take – Quiet Monday closes over June resistance; continued strength overnight

Bernanke speaks at 10:00 am, which could be the mover of the day, should there be one.  Earnings announcements continue to be dribbled, but with no other scheduled news, we have bumped him up to the Major Market Movers in the right column, perhaps out of nostalgia for the days last fall when his mere appearance on television could send the markets standards of deviations higher or lower.  We don’t expect this action today, but will be cautious around 10:00 am, when his testimony to the House Financial Services Committee is released, especially in light of his coordinated op-ed in the Wall Street Journal this morning, which is his standard toolbox speech, but geared toward the Fed’s exit strategy for draining reserves and ultimately fighting inflation when the economy recovers.  Bernanke seems to have given up on the idea floated through San Francisco FR Bank President Janet Yellen whereby the Fed would issue its own debt to drain reserves—such are the political headwinds now at the Fed.  As we updated yesterday, the 30 year and 10 year hit key support levels and were able to bounce, keeping yields in check even as equities edged higher.  However, a material breach will set yields off to test highs, putting the Fed in a precarious position.  Clearly, the Fed and the administration want to have their cake and eat it too—higher equities and lower long term interest rates.  We will watch for clues as to any change in how these two plates will be kept spinning.

The ES closed at its highest level of the year yesterday, finally overcoming the 944.75 June closing high, reaching the 952.75 long term upside target (the next being 970.50), and thus paving the way for higher prices.  That being said, we are in the critical resistance zone and need to be very careful with both longs and shorts as there tend to be shakeouts on both sides in these areas.

Daily R1’s (calculated on day-session-only and the day and overnight sessions combined) from 953.00 to 954.25 have provided overnight resistance as we write.  We are bullish down to…

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