10:39 am EDT:  The ES did not fill the gap (also the day-session-only pivot) per the preferred early trade.  On New Home Sales at 10:00 am, it hit the upper end of the projected daily range (actual high 1115.75) and sold off sharply 4 points, only to retest that high.   We mentioned VWAP serving as strong overnight support, and it has been the focal point during the day session as well.  This is not surprising as program trading is dominating the action with humans largely absent this week.  Accordingly, if the ES trades below VWAP then uses it as resistance, there is a chance to still see the gap fill.  Otherwise, if the ES cannot trade under it, there is a chance to see new highs, with 1118.25 (day-session-only R2) and the high on the continuous futures chart (11119.00) as a target.

The Precise Take – Can ES shrug off a GDP disappointment?

Leaders Analysis:   The EuroYen finally broke above its 20 day moving average overnight, with no major resistance now until the confluence of its 50 and 200 day moving averages, 2 big points higher.  T-Bond and T-Note futures broke support yesterday and sold off further overnight.  The US Dollar Index remains strong, however, that does not seem to be an impediment to equities as of late.  We have not mentioned gold recently because of its inverse correlation with the US Dollar, which seems stronger than the positive correlation gold has had with equities this year.  Accordingly, the setup remains strong for further gains in equities this week.

Medium Term Analysis:  Yesterday’s low volatility melt up continued overnight, as the ES drifted higher overnight with no correction beyond VWAP until GDP at 8:30 am this morning.  GDP was revised materially to the downside, but we expect traders to buy dips given the highly bullish seasonality this week.  NYSE $Tick has quieted down, so day trading opportunities are fewer.  The Nasdaq 100 made a new high for 2009 yesterday, and the S&P 500 and Russell 2000 (both cash) are at highs. 

Trading Today:  The 81 min chart we posted yesterday demonstrates the consistent channel trading of the ES this month.  If the pattern were to hold perfectly, the ES would…

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11:30 am EDT:  As is demonstrated by the below chart, the ES is back to the upper end of its trading range.  Long term volume at price for the Mar 10 contract (not shown) peters out above 1110.50, so if the ES continues to accept value at these levels, chances of breaking the existing range and eventually moving to test at least the 1126 level over the next few days are very good.  From a day trade perspective, both longs and shorts look pretty aggressive here.  The EuroYen never broke up through its 20 day MA and the current high of 1112.00 was made in the first hour, but the ES is accepting at the high end of the multi week range and an afternoon push up is in the cards as long as 1107.00 holds.  That’s about as helpful as we can be now.

9:59 am EDT:  The ES opened near the top of the projected range at 1105.50 and easily pushed through.  This level should now act as support down to 1104.25, below which we would not look for longs.  Ordinarily, we would expect a trend day up, but because of the holidays, we could see the high within the first hour.  1110.50 (combined session R2) and weekly R1 (1111.00) provide a good target.  Shorts remain aggressive, however, until at least 10:30 am and, even after, we would need a good topping pattern to setup up on the short term charts with a small stop.  Also, we would want the EuroYen to  not break its 20 day moving average of 130.444.

The Precise Take – ES to gap open on quiet news day

Leaders Analysis:   The EuroYen forex cross remains strong and has advanced from Friday’s close, but still has not broken the 20 day moving average that has contained it since Dec 8.  Friday we wrote that T-Bonds and the US Dollar would likely correct a bit early this week and that T-Bonds were the weaker of the two.  In fact, T-Bonds have already retraced back to support and the US Dollar is only marginally down, but is demonstrating the potential to put in a topping pattern on the daily chart.  Nasdaq 100 futures are poised to open above resistance (~1813) that has held since mid November.  Early acceptance and a close above this level would help spark the end of year rally that many are waiting for.  All in all, the setup is equities bullish, but with several of the leaders at potential inflection points, we will be watching the EuroYen and NQ in particular over the first hour for confirmation.

Medium Term Analysis:  With no scheduled news today, we’re expecting more of the same low volatility, which will probably continue for at least the remainder of this week and likely the next.  Tomorrow features the third estimate for Q3 GDP, but a major revision is unlikely.  Next week will complete Treasury’s 2009 auctions and supply on deck will be large, which could weigh on equities.

Trading Today:  The ES is up overnight with the high so far of 1104.25 at combined session R1.  Just above is resistance from a high volume level and day-session-only R2 from 1105.25 to 1105.50, which form the upper end of the projected range.  Though we’re expecting low volatility range-bound action, because of the strongly bullish setup in the leaders, we will be more careful with…

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11:25 am EDT:  The ES broke through today’s value area bounded by 1093.75, and has now exceeded the 1090.00 target and lower end of the expected range.  1087.25 to 1087.75 contains weekly S1 and combined session S1, which longs need to support to keep the prospects for a rally next week alive.  Another reason this level is critical is because SPY is at VWAP anchored from the Nov 2 low, which has supported price twice before. 

10:24 am EDT:  Quiet day so far with a 4 point range defined by the day-session-only pivot of 1094.75 (actual low of 1095.00) and day-session-only R1 at 1099.00, which is the actual day session high.  Accordingly, we’ll stick with the expected range of 1090.00 to 1103.50 as they contain day-session-only S1 and day-session-only R2, respectively.  We have a slight bullish bias and are inclined to believe a test of the upper range, which includes the overnight high will be made.  Watch out for a possible bear trap on a break down of the current 1095.00 low as there is strong support under it down to 1093.75.  If 1093.75 is not supported, we lose the slight bullish bias and a test of the ~1090 area is likely.

The Precise Take – ES maintaining range support on options expiration

Leaders Analysis:   The EuroYen forex cross (as a barometer of global risk appetite) had a very bullish reaction to support overnight, which helps confirm our belief that yesterday’s down move is part of a shakeout of weak equity longs before a move higher.  A close above its 20 day moving average today or Monday would be stronger evidence.  Though the US Dollar and 30 Year T-Bond futures are maintaining yesterday’s big gains, they will probably attract sellers on any more strength and correct a bit early next week, with T-Bonds the weaker of the two.  US Treasuries in general are benefitting from the sovereign risks in Greece and elsewhere, and traders should be sensitive to the possibility that a resolution or exacerbation of the situation could cause immediate volatility.

Medium Term Analysis:    Today is quadruple witching options expiration, so caution is warranted, especially around the open and close.  Next week, however, presents a good opportunity for equity bulls, as the scheduled news should be favorable.  For this scenario, weekly S1 in the ES at 1087.25 needs to hold today.  Day trading opportunities will likely be limited with continuing decreased volatility during the holiday day sessions.  The week after next features a large set of Treasury auctions in the 2, 5 and 7 Year tenors, which will tend to damp equity gains, after which the focus will move to annual earnings in mid-January. 

Trading Today:  The ES had a strong closing 15 minutes yesterday and was able to rally impressively overnight.  Today’s value area is from 1093.75 to 1097.25, and if the ES opens in or near it (as it looks like it will), we don’t have a preferred early trade and will…

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1:18 pm EDT:  The ES was able to marginally poke above 1098.00, but quickly fell back to 1096.25, then made a double top on the intraday charts before selling off to new lows.  There is minor confluence support at 1089.00 to 1090.00, then stronger support from weekly S1 at 1087.25.  1095.50 to 1097.00 is now a short area.  Longs are aggressive until 1097.00 serves as support, which is now unlikely.