As we have now reentered the highest volume value area and slightly exceeded its point of control at 1063.00 (also just shy of weekly S1), absent an unlikely selloff on the close below 1055.50, longs should be able to continue the push into month-end, tomorrow.  However, as we noted in the morning report, it is a heavy news day, so attention is warranted.  Monday, ISM will likely disappoint, but Wednesday’s FOMC announcement and Friday’s Employment Situation are statistically bullishly skewed over the last two years, so the current mini-rally could conceivably take the ES to test ~1080, or even the ~1100 high by next Friday.  This is the ideal scenario for the longs; however, there appears to be more that can go wrong for the bulls than bears, with shorts able to seize on weakness more easily.  Today’s call was relatively easy given the GDP gift.  We don’t expect to many others in the near future.

10:09 am EDT:  After the open, the ES sold off to the daily pivots, rallied to just short of the pre-open high at 1050.00, sold off lower to daily VWAP, but has now been able to break to new highs.  1053.00 to 1055.50 should still be watched as a potential reversal area (right there now), but the ES should be able to reach 1063.00 today.  If the high is less than 1055.50 today, tomorrow could be another down day.

The Precise Take – GDP satisfies, equities need to prove themselves with a rally

Leaders Analysis:  Overnight, the EuroYen tumbled more, to near its 61.8% key support that we updated on yesterday.  Gold advanced overnight after hitting the bottom of its trend channel yesterday, the US Dollar is up immaterially, and 30 Year T-Bonds are relatively unchanged ahead of GDP.  Overall, a slight equities bullish bias.

Medium Term Analysis:  We have been expecting some small oversold bounce the past two days but it has taken a 3.5% GDP (in line with expectations, except Goldman’s) to provide the juice.  Given the market internals and leaders reactions as of late, we will not be so quick to expect another short covering rally to new highs as we have in the past couple months.  Rallies will be swift and volatile to shake out weak shorts, but we will view them as shorting opportunities unless the markets change posture significantly.  Tomorrow is an unusually full news day for a Friday that will cap a volatile week and the end of the month.  Though Chicago PMI tomorrow at 9:42 am (released 3 min. ahead of official time to subscribers) is not expected to be a market mover, it was a surprise at the end of last month that provided some early volatility to the trading day.  FOMC and Employment Situation next week may provide rallies for possible swing shorts.

Trading Today:  The ES sold off down to the monthly pivot yesterday at 1038.50 where it settled, and on GDP, has rallied to the confluence of the 50% retracement off yesterday’s intraday high and closing VWP at 1048.75.  It’s a bit surprising the rally has not moved farther in light of GDP delivering as expected, so while we’re still willing to…

Continue reading here.