1:25 pm EDT:  Bid to cover ratio was 2.74 with non-primary dealers taking about 63%.  All in all, not bad, though the 30 Yr yield spiked up a bit (and subsequently retraced the spike) on the results. 

The day has turned from bearish to neutral now, so we don’t have a directional bias into the afternoon, except for the statistical tendency to have a bearish closing hour because of yesterday’s POMO.  Accordingly, we consider any positions entered in the middle of the day’s range to be aggressive, preferring to fade the range, with stops close to the extremes.

11:41 am EDT:  Paying head to the spike up and subsequent retreat on the 8:30 am reports this morning has paid off, as the ES has fallen, but found support at daily S2.  Though S2 was a potential reversal area marked in our morning report, we preferred to hold out for the 1008.50 to 1011.00 area before attempting any longs.  We will likely remain out of the market until after the 1:00 pm 7 Year auction.  If it comes out average or above expectations, we would expect a resumption of the down trend in equities for the day.  If it comes out poorly, equities could climb into the afternoon.  However, in this (unlikely) scenario, if the ES cannot break the day session high of 1027, by 3:30 pm, we would be wary of holding onto longs.

After further review of the 8:30 am reports and the prior days’ news, we find it bearish that equities have been unable to advance in the face of good (and at least not bad) news.  If the 7 Yr auction cannot move equities higher, there is still Personal Income and Consumer Sentiment tomorrow to close the week, but we do not expect an “upside surprise for economists”.  Further, even if equities head lower into tomorrow, the FRNY has announced today that it will conduct Agency POMO tomorrow, which tends to lift equities into the close, especially when the Thursday before was not itself a POMO day (as is the case this week).  All in all, while the prospects of higher highs in equities is looking dimmer into tomorrow, longs should not fear disaster unless multiple news items disappoint strongly.

The Precise Take – Equities maintaining into final Treasury auction of the week

Medium to Long Term Analysis:  Below is the 30 Year T-Bond futures chart updated through this morning, which shows the 30 Year still hovering around resistance (red rectangle).  That it didn’t retrace this week to the 61.8% (or even the 50% level) of the most recent upswing is bullish for it (and bearish for equities), but today’s 7 Year auction will likely be the catalyst to either new highs or a stronger retracement downwards.  Our bias is for a strong 7 Year (bearish for equities) as we had last month, but anything is possible as always.

Time Profile:  Today is the day after the FRNY has conducted permanent open market operations (POMO).  Since inception of POMO in Mar 09, there has been a bullish bias in the opening hour and a bearish bias in the closing hour.  These biases dissipated slightly in May and June, but have reasserted in July and August (see page 2 for chart).  If there are gains today, we would warn to protect profits before heading into the close.  If we head down today, losses could accelerate into the close.

Trading Today:  As we write, GDP (revised) and Jobless Claims released at 8:30 am caused a slight upsurge to 1031.00 in the ES, with a subsequent retreat downwards.  We always pay head to spike highs on important news around contract highs, so longs will need to head higher early to prevent a potential selloff.  The one mitigating factor to this bearishness is the…

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