The Precise Take – Equities on fire overnight with an eye on ISM Manufacturing at 10:00 am

Looking to our leading markets, gold has broken to the upside outside its consolidating wedge that we noted last Thursday, crude has punched higher and is on a three day tear, the US Dollar index has broken strong support and long term Treasuries have retraced about 50% of Friday’s large gain.  All of this points to higher highs in equities on a continuation of the inflation-based rally.  When leaders speak, we must listen, but also plan for contingencies.  The one bearish scenario that could unfold today and point to a correction over the coming weeks would be for gold and the Dollar to reverse their overnight action on a poor ISM report at 10:00 am, with gold eventually closing lower today and inside its consolidating wedge and the Dollar closing higher, above its support line.  Otherwise, within the framework of our Grand Unified Theory of Market Manipulation (G.U.T.), we expect to see higher highs in equities until the 30 year hits either 116’07 support or retraces to its swing low from last week at 115’15. 

In the ES, we’re bullish above 990.50, except that we would fade a spike high at 10:00 am if the report is bearish and equities react accordingly.  Overnight, the ES hit our potential reversal zone (including the daily R2’s and weekly R1) of 995.75 to 997.75, which will be the key hurdle for the bulls to get over in the first hour to make new highs.  Aside for some minor Fibonacci extensions, above 997.75, as resistance we only have day-session-only R3 at 1,007.00.  The 1,000 level, however, in the futures and cash will likely be psychological resistance.  We don’t get outright bearish until…

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Correction:  The levels for the 30 year above are actually for the 10.  Correct support for the 30 is 116’18.5 and 114’30.  HT RW