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…

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