The Precise Take – Equities maintaining strength in the midst of heavy news week

Leaders & Medium Term Analysis: Gold shot up to 1023.30 overnight (basis Dec 09) on continued US Dollar weakness, which also has helped fuel the continued surge in equities.  As we have been writing, we have a very good probability of a top either today or tomorrow, but need to see confirmation with a close below 1030 in the ES by tomorrow.  Overnight, the ES has maintained strength by yesterday’s highs, but 30 Year T-Bond futures are up slightly and the EuroYen forex cross down materially, which are both non-confirmations for equities and gold strength.  The ideal top will by a spike up in equities on one of the pre-market reports this morning with a distribution day that closes below 1030.  Alternatively, tomorrow’s two 8:30 am reports could be the bearish catalyst.  If this scenario does not play out, there is very little overhead resistance above 1066.00 until we get to the 50% retracement of the entire down move at 1126.25, with other Fibonacci resistance at 1144.75 and 1160.75.

Treasury Analysis:  Tomorrow, Treasury will announce next week’s auction schedule.  Last month, the continued upward trend in auction amounts was halted, and we expect this month to be on par with to slightly less than last month.  We do not expect the same nervousness in the bond markets that we had in previous months as recent long term auctions have gone well and yields are testing support rather than on the verge of breaking through upside resistance.  If we do get the reversal in equities this week, the 30 Year should be finally able to break through its resistance (and yields through support) and we would likely see a short covering rally up to at least the 124-125 level.

Trading Today:  As we write, the markets have reacted tepidly to CPI and the Current Account reports at 8:30 am, and there are still TIC and Industrial Production before the market opens.  We are willing to cautiously buy strength between 1042.50 to 1046.00, but become intraday bearish below, mindful of the strong possibility of a longer term correction.  Therefore, we will not…

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