The Precise Take – Can overnight gains extend, or will typical OpEx choppiness reverse them?

Treasury Analysis:  The 30 Year T-Bond has hit the lower end of a very strong resistance area that extends from 120’30 to 122’03.  Please visit Wall St. Cheat Sheet’s Chart Junkie page about mid-day for the chart and explanation of the forms of resistance we’re seeing.  The auction amounts for next week as released yesterday will be for slightly less than last month’s (see below), with the trend of increase in the longer dated auction amounts halted (at least temporarily).  With equities also retesting highs and a new “moderating” tone at the Treasury, the 30 Year will be key next week to confirm a breakout or double top in equities.   

Time Profile:  See page 2 for historical Time Profiles of options expiration day.  Notable is that from the 2001 bear market until the end of 2004, there was a strong initial bearish bias in the first hour, which gave way to an initial bullish bias that has increased since about August 2007 (not shown).  Derivatives (including options) trading has changed so much since 2001, that we don’t place too much importance on the direction of the bias, so much as tendency of it not to continue (and indeed often be reversed) early in the day.  As the Time Profile measures the net change from the prior period’s close, the first hour includes any opening gaps.  This means, any overnight gains are likely to not extend materially in the opening 60 minutes, and have a tendency to be reversed slightly in the 10:30 am to 11:00 am period.  The rest of the day tends to be choppy with the final hour having a bullish bias and the final 15 minutes after 4:00 pm (in the futures) tending to reverse.

Trading Today:  As of yesterday, 995.25 is the new highest volume market profile point of control for the life of the September 09 ES contract, having overtaken the 913.00 level that held for so long.  This will make the 995.25 level the key level to watch going forward.  We become intraday bullish above overnight highs (as we write) of 1011.75, but would be surprised if the ES were able to…

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