The Precise Take – ES warns of susceptibility to weakness

Leaders Analysis:   The leaders were outright bullish on equities right up until the Wells Fargo downgrade late yesterday that led to the larger selloff.  Overnight, they have not moved much and are not giving any further signals.  When all markets turn on a dime so easily, we must question the strength of the prevailing trend. 

Medium Term Analysis:  With earnings season nearly completed, looking ahead to the news calendar, there is little to get excited about.  The ES is not as easily able to shrug off bad news as it was earlier in the year, so it will likely take more than one more upside surprise to restart the rally.  Given the dubious nature of many of the headline statistics, this is more than a trivial possibility.  However, if that does not occur, bulls may not regain control until the FOMC Announcement on Nov 4 or the monthly Employment Situation report on Nov 6.  Longs will have regained control if the ES accepts above 1088.50, the highest volume point of control for the week in confluence with the 61.8% retracement of the recent move down.

Trading Today:  Overnight, the ES found support at Fib confluence at 1072.00.  As we write, the ES surged mildly on the weekly Jobless report.  Preferred early trade is to…

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1:37 pm EDT:  All the leaders are confirming equities strength, so we would be surprised to see an end to the rally here.  As we wrote in the morning report, the reaction to the Fed’s Beige Book will be key, but not as critical as when  the ES was trading in the lower 80′s.  The ES has found support at yesterday’s point of control in confluence with overnight highs (actual interim low of 1091.25).  If the ES dips on the release, we would want to see any foray into the 1089.00 to 1092.00 area quickly rejected to support the long position.  If the ES can test highs again, they have a good chance of breaking, with upside targets of 1102.25 and 1107.25.  Swing longs still want a close above 1089.00, especially ahead of tomorrow’s Jobless Report at 8:30 am.

10:57 am EDT:  The EuroYen was the correct leader to watch, as it broke through 136 resistance a full 15 minutes prior to the open, upon which equities rallied out of the gate.  The ES has found resistance nere contract highs in confluence with combined session daily R1.  However, the ES is likely to reach one or both of the daily R2′s at 1102.25, then 1107.25.  Pullbacks will likely be shallow until the high is reached.  Only a return to below the day session only pivot of 1089.00 puts the rally in question.

The Precise Take – ES testing critical support for longs

Leaders Analysis:   Mixed signals: gold and crude backed off a bit yesterday and overnight, but 30 Year T-yield futures have also retreated a bit after hitting a key 50% retracement yesterday.  The market to watch today and tomorrow appears to be the EuroYen forex cross, which has formed a bull flag on the daily chart at resistance.  If it can break through 136 convincingly, equities will likely resume the rally after yesterday’s hiccup.  If it falls below 134.7, the correction should be deeper.

Medium Term Analysis:  As we wrote last Friday and Monday, the housing reports this week were supposed to have provided lift ahead of next week’s more difficult reports (Durable Goods, GDP & Personal Income).  Instead, they have disappointed.  With the ES overnight nearly testing the weekly pivot of 1080.25 (which forms the upper range of critical support for this rally), equities need a new catalyst.  It will be interesting to see how the Fed’s Beige Book (which the FOMC uses to guide policy) is spun this afternoon at 2:00 pm.  With rumors of tightening circulating, weakness in economic data could be interpreted as a catalyst for an extension of Fed easing, which is bullish for equities (as illogical as this may sound).  If weak numbers lead to an equities sell-off, than it is a sign that, easing or no easing, there is some sense returning to the markets and the great hope rally of 2009 needs more fundamental support.  Leading indicators tomorrow at 10:00 am and Existing Home Sales at 10:00 am Friday are also major reports to be watched.

Trading Today:  Overnight, the ES sold off just above yesterday’s market profile point of control and broke through the trend channel that began on Oct 7.  However, price continues to trade in the highest price value area (shaded green below), of which 1084.25 is the point of control.  Unless and until the ES accepts below 1078.00, the rally is not in jeopardy.  As we write, Wells Fargo earnings have provided a minor boost to the ES, taking it to overnight VWAP at 1086.00.  We would be early buyers anywhere from…

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The Precise Take – ES longs extend gains overnight

Leaders Analysis:   30 Year T-Bond futures continue to advance slowly after hitting support late last week.  As long as there are no major surges, the equities rally should be safe.  Gold is marginally higher and the USD is marginally lower, with the EuroYen still consolidating.

Trading Today:  The ES reverted to VWAP yesterday on the close, only to surge nearly seven points in the opening minutes of the overnight session.  Since then, it has been volatile, with two new highs and a new overnight low.  As we write, the two 8:30 am reports of Housing Starts and PPI disappointed a bit, but the ES found support just above yesterday’s settlement.  If the day-session-only pivot of 1090.25 holds into the open we would be…

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12:57 pm EDT:  There has been little if no selling on the nominal new contract high.  As always, we are careful to watch for spike reversals at highs on an important report (Housing Index in 3 min. at 1:00 pm).  However, if weekly R1 at 1097.25 is cleared, there is no further resistance until 1103.00 to 1104.00.  Be careful with longs if the ES trades below 1090.25.

The Precise Take – ES higher overnight into housing stats week

Leaders Analysis:   No moves to speak of, except crude inches to new yearly highs.  30 Year T-Bond futures, the EuroYen and the US Dollar are mostly consolidating.

Medium Term Analysis:  As we wrote Friday, the focus this week is on housing data, which is not expected to disappoint.  PPI tomorrow could weigh a bit on equities the way Chicago PMI and Durable Goods did a few weeks prior, and it is concurrent with Housing Starts, so that will be a critical time for the markets if they are at major support or resistance.  Next week will be a bit tougher for equities in terms of news, so longs will want to push to new highs while the going is good, and 1126.25 is a reasonable target this week.  A close in the ES below last week’s low of 1077.50 puts the rally in jeopardy.

Trading Today:  After taking out Friday’s low by a few points early overnight (low 1076.25), the ES traded sharply higher (1089.50).  There is a large support area with pivot, Fibonacci and market profile support that spans 1080.25 to 1085.00.  The ideal early long is from 1083.50 (closing VWAP) to 1085.00 (combined session daily pivot); however, we’re willing to consider longs all the way down to the…

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Reprinted from our weekly Chart Junkie submission at Wall St. Cheat Sheet.

The anchored VWAP line in blue provided good support over the years, including the 2002 low after the tech bubble crash (8).  However, price clearly broke through the line at times, most recently in March 2009 (9).  The lower panel plots the percentage deviation of price from the VWAP line, beginning from the July 1932 low.  Interestingly, the % deviation to the down side has never exceeded the -16% to -24% support area, the lower end of which was precisely hit this March (-22%).  This support level also caught the major low in 1974 (5) as well as some early lows in the 1930’s (1, 2 & 3). 

Just as the yellow horizontal lines can act as support or resistance, so can the green trendlines.  The 1966 top came after a break through major trendline support (4) and retest of the 110% level.  On the 2000 top (7), there was no upward retest and this did mark the high.  Eventually, the current rally will peter a bit, and we would expect a long period of sideways action until the far right green downward trendline is finally broken.  Unfortunately, this could take years (points 5 to 6 span eight years). 

What will be the high of this rally?  We would expect it to come on a test of one of the two far right green trend lines.  If price were to continue up at the same pace, this would be at Dow 10,700 or 12,500.  However, if the trend slows or stops altogether, these figures will be less of course.  We will definitely be keeping an eye on this indicator for some time.  For background on the powerful support that anchored VWAP can provide (a component of the Paul Levine MIDAS method), please see our Free Resources page (includes free TradeStation indicator).

10:01 am EDT:  Though the ES opened in our buy zone, it has not been able to advance and Consumer Sentiment disappointed a bit.  If the ES takes out the 1080.50 by more than one point or cannot rise above 1086.00 by 10:30 am, we do not want to stick around long.  Nor are we interested at shorting these levels.  If lows break, 1075.00 to 1076.00 needs to hold because there is nothing major until 1068.00.

9:20 am EDT:  Yesterday’s low of 1080.50 held to the tick and the two reports this morning have aided support.  We will look to buy between 1082.50 to 1084.50 near the open with a play for the daily pivots between 1087.75 and 1088.50, where we may reverse short depending on market internals (possibly up to 1090.25).  We do not want to be short above 1090.25.