12:26 pm EDT:  The ES is hanging around quite comfortably in the middle to upper daily range.  We would be inclined to expect the range to hold but for the $2.1 B permanent open market operations in Agency securities the FRNY conducted this morning and the high correlation with a bullish close.  The price at 3:30 pm will be key for us whether or not we will break the upper range.  That price for us is the same 986.00 from the earlier post.  Below that and we don’t think enough momentum can develop to push through highs.  We would be surprised to see a break below early morning lows and yesterday’s settlement of 977.75, but 973 is still strong support and we expect to close above it, even if price breaks through it intraday. 

The 10 and 30 Year Treasury futures have posted huge gains today as expected, and we would be surprised to see that momentum squander by new highs in equities early next week.  Next week we have two FRNY POMO days back to back Wednesday and Thursday.  Based on this we would expect a decline into Tuesday, with Tuesday 3:30 pm or Wednesday 1:30 pm +/- one hour to be the best time to initiate new longs or close shorts.  As we stated in the morning report, we will be thinking this through and reporting on it more thoroughly over the weekend, so this is an unofficial caveat. 

As an aside, to answer a reader’s comment why we have not once mentioned the US Dollar once this week despite its volatile attention-drawing activity, it is because we believe it is being lead by Treasuries and is not supplying any leading information.  Were M2 NSA trending up with the Dollar down, we would give it more importance as the depreciation through monetization theme would be present.