The Precise Take – Continued strength overnight into options expiration Friday

Leaders Analysis: As we updated yesterday, the leaders are confirming the strength in gold and equities, with correlations that match the past year’s norms. 

Treasury Update:  As we also updated yesterday, Treasury has announced the effective cessation of its Supplemental Financing Program that was intended to help the Fed with its balance sheet one year ago, with the effect that $185 B could possibly work its way into the markets over the coming weeks.  We received many questions and comments and will post an update before Friday noon at the latest after we have seen the Fed’s latest statistics published after today’s close.  If Treasury gave appropriate notice of this change, any trading effects should not be felt until next Thursday. 

Medium Term Analysis:  Yesterday, we did not see the distribution day we wanted to confirm an intermediate top.  We could still get one today per our less likely scenario, but we would need to form a bearish engulfing candle with a close below yesterday’s overnight low of 1044.50 to have this possibility.  As always, we don’t front run possibilities; however, we do adjust our day trading accordingly.  Tomorrow is options expiration day, and next week features the end of month Treasury auctions and an FOMC Announcement Wednesday.  Any major change to monetary policy is unlikely to be announced, and we must take heed of the historical probability of another surge in equities on this day.  If we don’t correct today, the next upside targets range from 1126.25 to 1160.75 and are reachable by early October.

Trading Today:  Overnight, the ES reversed down off the confluence of daily R1 and monthly R2 at 1070.00.  This will be a key level for the longs to break to make new highs this week.  Above, and we are outright intraday bullish, watching 1074.75 to 1076.75 as a potential reversal area and which we are willing to…

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