The Precise Take – Slight weakness into significant Treasury auction day

The short term and TIPS Treasury auctions went well as expected yesterday, with the first test of the real demand for medium term Treasuries today at 1:00 pm with the 52 Week and 2 Year auctions.  We’re still looking for leadership clues with gold trying to break through 61.8% resistance or reverse to the downside off this level, and similarly a break in 10 year notes and 30 year bonds of support or a reversal to the upside, with none of the three moving materially since yesterday.

Tomorrow and Thursday of this week are back to back days in which the Federal Reserve Bank of New York (FRNY) will be conducting permanent open market operations (POMO)*, which will flood large banks with leveragable liquidity at about 11:00 am on each of those days, and which has an end of day tape-painting effect.  See page two for time profile graphs of what can statistically be expected for today, tomorrow and Thursday.  There is a tendency on a Pre POMO day, such as today, to front run the expected liquidity injection into the close (3:30 pm to 4:15 pm).  Tomorrow, we would also expect most gains to be into the close.  And, though there have been only 6 prior back to back POMO days (all since May), the bullish edge appears to disappear on the second POMO day, which would be this Thursday.  Accordingly, swing longs may want to close out positions by tomorrow (Wed) as opposed to waiting for the close on Thursday.

Today is a moderately full news day with the times to watch as 9:00 am, 10:00 am and 1:00 pm.  With premarket action in the ES getting down to daily S1 (day-session-only) and below yesterday’s highest value area point of control, we have a bearish bias.  Longs will need to get above the daily pivot/gap area of 976.25 to 980.00 to regain…

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