The Precise Take – Overnight, the eMini S&P 500 tests contract highs to the tick

Leaders Analysis:  Markets had priced in strong demand at yesterday’s 10 Year auction and equities closed strongly.  30 Year T-Bond futures made a hammer bottom on the daily chart, spiking nearly to the 61.8% support.  Gold continues to back off from the 1000 level and the US Dollar index is respecting trendline support.  Nearly all the market leaders are pointing to lower equities; however, equities refuse so far to obey.  The lone dissenter among the leaders (or at least neutral) is the EuroYen forex cross, which is at its 50 day moving average, but is not yet showing reversal signs to confirm the other leaders.  The two most likely possibilities are:

1)     The majority of the leaders are correct and equities will correct today.   This means we either have a perfect double top at 1038.75, or we will get an extension beyond the highs, which will be reversed late day.

2)     The majority of the leaders are correct, but will tread water while equities head higher and eventually reverse next week.

3)     The majority of the leaders are incorrect and equities will continue to post new material highs with the leaders reversing into next week (gold higher, Treasuries and the Dollar lower).

1 is the most likely, but 2 is gaining ground quickly.  Everyone seems to expect a September correction, which we believe will come, but will likely cause considerable pain to the shorts before occurring.  Currently, we don’t believe the shorts have hurt enough and believe an extension to the next upside target of 1053.50 (a major 50% retracement on the continuous futures chart for the ES) would be sufficient to cause this.  Today is a full news day and a 20 point extension upwards is at least conceivable. 

Trading Today:  As we write, the ES is advancing on the 8:30 am Int’l Trade and Jobless Claims reports.  Overnight, yesterday’s highest point of control in confluence with the combined session pivot point served as support, and longs will need to keep price above this low of 1028.75 to get another extension.  We will not fade short any strength until late afternoon, if at all, as it is dangerous to…

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