10:35 am EDT:  The ES was not able to retest the 1065.75 pre-market highs, heading down initially, but the daily R1′s have provided support (low 1056.75).  Accordingly, we remain bullish as long as that area holds within a point.  We would tighten stops on any day trade long on a test of the 1065 to 1068 area, as we believe it will contain the ES today.  We are still willing to fade short this area, but need to see the quick rejection of the area to confirm.  If the ES is able to hang around above the 1063.00 long term point of control into the early afternoon, there is a chance of materially breaking to new highs, but less so now, given the dip all the way down to the R1′s.

Leaders:  The 30 Year T-Bond continues to advance, which is a bit troubling for equity longs.  The 1:00 pm auction is key, now.  If it is wildly successful, it could propel the 30 Year to new highs, which will weigh on equities.  If it is a disaster, equities should find a little bit of strength.  In between, and we don’t expect it to be a market mover.

The Precise Take – ES testing contract highs as earnings season is underway

Leaders Analysis:   Gold has advanced with equities overnight on the Alcoa earnings surprise.  As we wrote yesterday (free registration), we don’t like to chase gold, but it will likely advance strongly as long as equities do the same.  However, strength in 30 Year T-Bonds and the Yen, especially in the EuroYen cross (still hugging the 200 day moving average), continues to refuse to confirm the moves in equities and gold.  They may simply be lagging, waiting to see if the S&P 500 can break through its September’s closing highs.

Medium Term Analysis:  As we have been writing, it is best not to get too aggressive with shorts while the Fed liquidity spigots are on, even with dismal fundamentals, such as yesterday’s Consumer Credit report.  Having said that, the longs have been put through some pain as well.  Such is the volatility we expect in October as a result of the distortions and strong contraction in money supply.  The ES is close to, but has not yet cleared the 1067 resistance level (two week’s prior point of control), which is the last major holdout to new highs.  Longs will want to have cleared it and made new highs prior to next Wednesday’s Retail Sales report, which is likely to be dismal.  With a three day weekend ahead, all the better if the shorts are scared out entirely by Friday. 

Trading Today:  As we write, the ES is attempting to break through the lower boundary of strong resistance from 1065.75 to 1068.00 on a bullish Jobless Claims report.  If it cannot break through pre-market, we would still be buyers at the 1059.75 to 1060.75 daily R2’s support area.  Longs will want the daily R1’s at 1056.50 to 1057.00 to provide support to continue the rally this week (we would still consider buying here as well, though not as aggressively); however, only a close below…

Continue reading here.