10:25 am EDT:  The ES daily pivot was taken out to the downside (low 1083.25 as we write) after a bullish existing home sales report.  This reaction is bearish for equities.  However, some degree of support has been found just over the 50% retracement of the move from yesterday’s low.  This support from longs is bullish.  All in all, mixed signals.  Aggressive shorts can enter at 1088.00 to 1089.00.  Aggressive longs can enter on a retest of 1083.25, allowing for only a one point penetration.  There is still support below from the weekly pivot to yesterday’s closing VWAP at 1080.25 to 1080.75, but the risk is a directional move will have developed if price trades that far lower.

The Precise Take – Volatility is the order of the day

Leaders Analysis:   The EuroYen, as a barometer of global risk appetite, continues to advance unabated, not having corrected materially the way equities did Wednesday. It is approaching strong resistance in the 138.7 to 139.2 area that has been twice tested this year, and has formed a bull flag on the weekly and monthly charts.  The first time it hit this area was June 5, after which it fell sharply with equities in the most serious correction of the 09 rally.  The second time was Aug 7, which correlated with only a minor equities correction.  Accordingly, longs and shorts alike should take heed as this important level is in sight, with the risk to shorts being greater.  Should the EuroYen break through resistance, there is little resistance until the 149 level, which would set the global carry trade on fire.  Should it reverse instead at resistance, there will be some degree of correction in equities.  30 Year T-Bond futures are down again on the announcement yesterday of the record Treasury auctions next week.  This too is giving some support to equities.  Gold continues to consolidate its recent gains, having formed a bull flag on the daily.

Medium Term Analysis:  The leaders are pointing to short term higher highs in equities, but we must be mindful of the increased volatility at these price levels as many markets, individually, are at their respective Rubicons.  In the ES and SPY (S&P 500 ETF), bulls and bears are still slugging it out at the VWAP line anchored from the October 2007 highs.  Until this is resolved, expect more of the unexpected, especially in light of next week’s major reports and auctions. 

Trading Today:  Greatest resistance is weekly R1 to contract highs (1097.25 to 1099.00).  Beyond, and only daily R2 at 1106.50 is near.  Strong support comes in at yesterday’s market profile point of control at 1089.00 to yesterday’s settlement at 1090.75.  We will carefully play this range early by …

Continue reading here.