The Precise Take – Leaders at turning points, ES oversold

Leaders Analysis:   The leaders are nearly all at potential interim reversal points, with 30 Year T-Bond futures up against its downward trend channel, the EuroYen nearing moving average and Fib support after a tremendous three day (4 big point) slide, and gold approaching its previous breakout area. 

Trading Today:  As we write, Durable Goods was in line with expectations this morning, so we expect a small short covering bounce today ahead of GDP tomorrow morning.  Accordingly, we would be early buyers anywhere down to…

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1:09 pm EDT:  2 Yr was overwhelmingly subscribed and is now putting pressure on equities.  Will not fade long at S1s.

10:21 am EDT:  Volatile trading early, though you would not know it from the price range.  Consumer Confidence erased the mild positive of Case-Shiller and flushed out the weak longs as the ES has sold through yesterday’s lows, almost down to the daily S1′s at 1055.50 (actual low of 1057.00).  The ES will probably see resistance up to 1065.25, and we would still use a retracement down as a buying opportunity, but not below 1055.50.  Target is the daily pivot at 1072.00.

The Precise Take – ES looking to pause after two distribution days

Leaders Analysis:   The major reversals yesterday in the markets are widely noted and point to US Dollar strength and equities weakness.  All we would add is that the intraday reversal in long term Treasuries that we updated on yesterday, particularly 30 Year T-Bond futures was erased and they closed on their lows as well.  This is significant with the 2, 5 and 7 Year auctions this week.  Long term yields are in a clear uptrend now after bouncing off the 200 day moving average on Oct 2.

Medium Term Analysis:  After two material down days and having found support around the 1063.00 point of control, a bit of a bounce is probably in the cards.  With four market moving reports before GDP on Thursday, watching price reaction will be key.  Markets are not discounting bad news the way they were just a few months ago, and GDP is probably the only catalyst this week that could provide an upside surprise strong enough to take equities to new highs.  Shorts have been beaten up over the last eight months, but they appear stronger now, so medium term we remain bearish.

Trading Today:  Case-Shiller Home Price Idx is at 9:00 am.  Barring a disaster, we prefer to be long early into the daily pivots in confluence with yesterday’s closing VWAP, 50% retracement of yesterday’s move, and minor point of control at 1072.00 to 1074.00, where we will protect any profits and consider reversing short.  However, if both reports are bullish, there is a decent chance for a… 

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1:06 pm EDT:  Downside action was achieved quickly, with the ES breaching the 1063.00 long term point of control that was respected to the tick on Oct 13 when the ES was rallying (actual low today of 1062.25).  The ES is now accepting in this value area bounded by 1057.25 to 1070.00, the lower end of which should serve as support over the next day should we get new lows.  1073 to 1074 remains a sell area where we expect longs from last week’s lows to cover. 

Leaders:  After breaking strong support this morning, 30 Year T-Bond futures are back up on the equitites selloff.  The EuroYen has posted a bearish engulfing on the daily (so far) and gold has broken to the downside through its pennant–all equities bearish.  With the 30 Year yield hitting nearly 4.4% earlier and demand concerns for this week’s Treasury auctions, equities may need to take a more substantial hit to support the auctions on a flight to quality basis.

11:40 am EDT:  After initially driving up through the daily and weekly pivots, the ES was not quite able to make it to the lower of the daily R1′s at 1089.50 (actual high of 1088.50), and certainly not up to the top of the green downward trend channel from the morning report in the ~1092 area.  In fact, the yellow upward channel has now been broken to the downside.  As we write, NYSE $Tick is posting <-1200 readings as price in the ES is testing the daily S1′s (1067.25 to 1068.00).  We’re not excited about fading long after this move because two of the prior three days featured relentless selling with new lows toward the close.  Retracements for shorting opportunities will likely be shallow, but we would take 1o73 to 1074.  Only a move back above the weekly pivot at 1082.00 will start spooking the shorts.

The Precise Take – ES marginally higher overnight into critical economic report week

Leaders Analysis:   The EuroYen has slowed its ascent as it approaches long term resistance, 30 Year T-Bond futures are resting at support, and gold continues to consolidate in a pennant formation.  This points to a pivotal week for the equities rally, but no clues yet as to direction.

Medium Term Analysis:  The two reports this week that will draw the most attention are Durable Goods on Wednesday and GDP on Thursday.  CS Home Price Idx and Consumer Confidence are also important tomorrow, and there are a number of large Treasury auctions that will be closely watched.  Swing and position shorts will be looking for entries on any minor equities rallies, so it will likely take an upside surprise in DG or GDP to force them to cover.  Next week features an FOMC meeting and the monthly Employment Situation, which will likely facilitate the ultimate directional move. 

Trading Today:  There is heavy resistance between the daily pivots and weekly pivot from 1080.50 to 1082.00, which provides the ideal early day trade short entry.  Just above, a long term market profile point of control at 1084.25 provides a protective stop.  We would not give that level more than a point on a short because…

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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 …

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10:15 am EDT:  The overnight low was taken out after Leading Indicators came out at 10:00 am, but price bounced off 1070.25.  Ideal next trade is a long from daily S-1 (1067.50).  There is good protection below from weekly S1 at 1064.75 and highest volume contract point of control at 1063.00.  We would consider a short from the 1082.00 to 1085.25 area with a tight stop.  However, Leading Indicators was not all bad, so we’ll be careful not to short if internals look strong on a minor rally to that area.

Leaders: EuroYen and 30 Year T-Bond futures are pointing to a bit of equities strength.