The Precise Take – ES trades down to critical support ahead of opex

Leaders Analysis:  The leaders avoided closing above or below their respective critical levels yesterday, but the EuroYen is back below its 200 day moving average overnight, the US Dollar is trading above its 20 day moving average, and 10 Yr T-Notes are poking above resistance.  Again, the close will be critical.

Trading Today:  The ES traded to just below monthly R1 and daily S1 at 1084.00 (actual low 1083.50) that needs to hold today for the rally to continue.  Accordingly, we are willing to…

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Above is a screenshort of the silver ETF (SLV), showing a rejection yesterday of strong resistance from yearly R1, monthly R2 and quarterly R1.  As silver has been stronger than gold as of late, this was an early warning sign for the precious metals sector.

10:40 am EDT:  The ES broke the daily S2′s early and has found support at precisely the next lower long term market profile point of control 1087.75.  The weekly pivot is just underneath at 1086.76 and monthly R1 at 1084.00, which will both provide strong support ahead of tomorrow’s options expiration.  1095.00 to 1097.00 is now a sell zone. 

Recall from the October top that there were several days in a row that reversed each other strongly.  Accordingly, if there is an interim top here, swing shorts still need a wide stop.  Not much change in the leaders since the morning report.

The Precise Take – Overnight weakness ahead of opex Friday

Leaders Analysis:  After posting a less than convincing upside reversal bar yesterday, the EuroYen forex cross (a barometer of risk appetite) is now trading below its 200 day moving average.  It poked below on July 8 and October 2, but closed above each of those days.  A close below the moving average today would be the first such since it broke above on May 22, and would warn of not only an interim equities top, but possibly a longer term one.  A close above and subsequent rally tomorrow would suggest there is more life in the rally.  30 and 10 Year Treasury futures are still hovering at resistance and a strong move either way will confirm the EuroYen.  The US Dollar is up near its 20 day moving average, which has provided support and resistance since early October.

US Dollar Correlation:  Yesterday,  Goldman Sacks released an interesting report that suggested the US Dollar carry trade (borrow Dollars to invest in risk instruments) was not the only possible reason for the strong negative correlation between the Dollar and equities, but that many foreign investors in US instruments are increasingly hedging their foreign exchange risk.  Accordingly, a purchase of a basket of US stocks would be matched with a concurrent sale of the US Dollar, and the reverse upon the close of the trades.  This makes sense, and suggests the unwinding of the carry part of the US Dollar decline may not be as dramatic as is currently believed by many.

Medium Term Update:  Next week is US Thanksgiving on Thursday.  Tuesday will feature the first revision to Q3 GDP and Wednesday is Durable Goods, both of which have the potential to weigh on the markets if they disappoint.  However, the Friday after Thanksgiving is historically bullish on holiday shopping euphoria.  Accordingly, longs will want to break to new highs by Monday ahead of GDP to continue the rally.  If equities are not down too much after the close this week, look for this possibility Monday.

Trading Today:  The ES has pared some of its overnight losses on the 8:30 am Jobless Claims report.  The daily S2’s need to provide support early for the longs (1096.75 to 1097.50) because there is little support below until 1091.50.  There is a large sell zone…

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11:27 am EDT:  Though the daily S1′s at 1102.00 were taken out (actual low 1100.75), the ES has bounced back into the overnight range.  T-Bonds are down and the EuroYen continues to advance slowly, now having taken out yesterday’s high, so it looks like the swing equity longs are safe for the time being.  Jobless Claims tomorrow and options expiration on Friday will be market movers.  We’ll likely play the existing Globex range for the rest of the day.

The Precise Take – ES poised to move with CPI behind

Leaders Analysis:  The EuroYen reversed just above its 200 day moving average.  Not the clearest of reversals as it did not hit support exactly and today’s up candle has not yet taken out yesterday’s high; however, it is looking equities bullish for the time being.  30 Year T-Bonds and 10 Year T-Notes are both stalling at resistance.  If they reverse down here, the S&P 500 should be able to easily continue its upward rally into the end of the week.  If they break through, we likely have an interim top in equities.

Medium & Long Term Analysis:  To be updated intraday. 

Trading Today:  CPI was roughly in line with expectations and Housing Starts disappointed a bit.  However, the ES found support near the overnight low in confluence with yesterday’s point of control and closing VWAP (actual low 1105.25).  This support area of 1105.00 to 1105.50 is key for longs to hold early if new material gains are to be made.  With CPI behind now, there is a decent chance for a…

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11:18 am EDT:  One of the benefits of keeping track of multiple forms of support and resistance is to be able to spot traps in advance.  A good setup will have an obvious support or resistance level (recent high/low, Fib, moving average) close to a hidden level (market profile point of control, longer time frame pivot, etc.) that is not as well-followed.  Once the ES broke the overnight high and traded two ticks higher to yesterday’s point of control at 1107.50, there was an immediate 2.5 point selloff on the 1 minute chart (below), which confirmed the bull trap. 

T-Bonds are flat, but the EuroYen is trading very close to its 200 day moving average.  The average is sloping upwards and the prior two visits to this line have supported price strongly.  A test will likely coincide with CPI tomorrow morning, and this is the leader to watch. 

In the ES, yesterday’s low and daily S1 of 1091.00 to 1091.50 is still strong support, but the 1:00 pm Housing Index cannot disappoint too much.

The Precise Take – ES consolidating gains ahead of tomorrow’s CPI

Leaders Analysis:  Despite yesterday morning’s large gains in equities, 30 Yr T-Bonds pushed higher throughout the day, especially after Bernanke’s noon remarks.  Interestingly, the EuroYen trended lower all day and overnight, so both were non-confirming of equities strength.  Unless the 9:00 am Treasury International Capital report shows a flight from Treasuries and causes T-Bonds to reverse, their strength should catch up with equities today, and we would be surprised to see material equities gains.

Medium Term Analysis:  After PPI (out as we write), there are four more major reports in the next 24 hours, culminating with CPI tomorrow at 8:30 am.  An extreme divergence from consensus could always create volatility, but this should be a range day otherwise.  As we wrote yesterday, this has been about the time when previous month’s rallies begin their topping process.  This does not preclude new highs this week, but longs should be on alert, especially in light of the T-Bonds breakout yesterday.  

Trading Today:  The ES sold off yesterday’s settlement in confluence with closing VWAP all night (actual high 1107.00).  However, yesterday’s point of control at 1107.50 and weekly R1 at 1108.25 loom just above, which creates the possibility of an early bull trap with a break of the overnight high.  If that occurs, there should be a…

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10:17 am EDT:  Longs did their job early as they needed to, with the ES having reached the weekly R1 target of 1108.25 quite easily.  Next resistance is 1116.50 (daily R3′s), then weekly R2 in confluence with a huge 50% retracement (1124.75 to 1126.25), not pictured.  Only a very unlikely close below 1096.00 puts the rally in jeopardy today.

SPY is benefitting from very little overhead supply in this area: