10:25 am EDT:  The ES opened above the weekly pivot of 1096.50, but could not rally more than 3 points to 1099.50 before selling off at VWAP, which had lowered at that point to 1099.00.  It is important to protect any profits in this low volatility environment.  Though it has found support now at two ticks below the 1093.75 confluence level, longs are now aggressive.  A return to 1097 to 1098 will be met with early trapped longs exiting at break even and program selling at VWAP, so this makes a natural short area.  The problem is reduced volatility will make gains on shorts limited and the projected downside target for a range day has already been reached.  If the ES can trade above 11098 and use that area as support, longs are no longer aggressive and move to 1102 to 1105 is likely.  The 1105 to 1108 area is a place where new swing shorts will enter, so it is unlikely the ES will manage to trade above there today.

The Precise Take – ES back to bottom of range ahead of Quadruple Witching Friday

Leaders Analysis:   Once again the major move has been overnight, with the US Dollar Index reaching its first upside target of 77.82 to the cent, which is the 50% retracement from the June 8 interim high.  The 61.8% retracement is 78.68, and it will be important to monitor price action in this Fib box.  The EuroYen had been consolidating in a wedge just under its 50 day moving average and sold off overnight, and 30 Year T-Bond futures are now advancing off support.  The current trends will likely last until T-Bonds advance to moving average resistance in the mid 119 to mid 120 area.  Until then, equities will probably continue to chop sideways to down.  If there is a high in the USD Index for a day, then equities could climb back up toward the top of their range.  If 77.82 is materially exceeded, the ES will probably slide down further.

Medium Term Analysis:    As expected, the FOMC did not make any waves yesterday, though they did shorten the time frame for winding down Agency and Agency MBS purchases (QE) from the end of March 2010 to the beginning of February.  How the mortgage markets will function without the Fed as market maker remains to be seen; however, that is beyond the scope of the medium term.  We still expect an end of year rally, but it looks like weak longs need to be shaken out first.  After the ES failed to take out weekly R1 three days in a row, it was a good bet that there would be a return to at least the weekly pivot at 1096.50, which was why we picked this as a downside target yesterday afternoon.    

Trading Today:  The preferred early trade is to be long with a target of overnight VWAP at 1100.25 to the daily S1’s at 1101.75, where we may…

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2:59 pm EDT:  The Announcement was released at 2:16 pm, whereupon the ES traded down 2.5 points to 1108.50, retraced most of that, then continued down again.  All in all, the most tepid response we’ve seen since the June 09 Announcement.  The ES looks like it’s finding support just above the upper end of today’s value range of 1105.25; however, longs are aggressive because of the statistically bearish bias to this time of day after an FOMC Announcement.  Were we to be long, 1104.00 is a good stop.  If it breaks, there is a small but real chance of a selloff down to the weekly pivot of 1096.50.

11:02 am EDT:  Not much to write about.  The 1107.50 level was breached by two ticks prior to the open, then there was a minor move up to yesterday’s overnight high of 1111.00.  No reason yet to expect any major deviations from the typical FOMC day profile.  The last four or five announcements have been several minutes late (past 2:15 pm).  Also, in the first 45 minutes, there’s usually a three wave structure with a quick initial impulse, a retracement, then continuation in the original direction.  With the low volatility lately, it’s possible the move will be small.  However, consolidation of the leaders suggests otherwise.

The Precise Take – ES strong ahead of FOMC Announcement

Leaders Analysis:   The EuroYen has been consolidating just under its 50 day moving average and a break through it would indicate some of the global concerns are easing (equities bullish).  The US Dollar is down a bit overnight, and equities have responded accordingly.  30 Year T-Bond futures are holding support and consolidating, so we’ll watch them closely today.

Medium Term Analysis:    After the FOMC Announcement today, the focus will be on options expiration this Friday, which also features the termination of the Sep 09 equity index futures contracts (quadruple witching).  The scheduled news has generally been improving, so we see no major obstacles to the bulls in the weeks ahead; however, the deteriorating situations in Greece, Spain, Ireland, etc. could weigh on the markets.  If things get too bad, an EU or member state bailout is a strong possibility.  Accordingly, should a correction develop in the next week or two, it could be suddenly reversed with a short covering rally to follow.

Trading Today:  It is pretty well known that FOMC day has a bullish edge.  On page 2 are two Time Profiles that show the net points for each 15 minute period throughout historical FOMC days.  The first 15 minute period also contains the overnight gap, if any.  CPI was a non-event this morning, so the ES should gap open by about 4 points.  Weekly R1 at 1112.75 has been a major obstacle this week and, with day-session-only R2 just above at 1113.75, this is today’s major resistance area, which should hold before…

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11:02 am EDT:  The ES exceeded the expected range.  The 1108.50 upper boundary was yesterday’s settlement, and the actual day-session high today of 1109.25 is a tick above yesterday’s 4:00 pm close.  So, there is still the possibility this is only a gap fill.  If the move up is to continue, we expect 1107.00 to 1107.75 to hold as support.  If it does not, price will likely return to the lower end of the range.

10:07 am EDT:  A whopping 2.75 pt opening range has left little room for opportunity.  The ES had recovered a bit into the open, which negated the possibility of a long into 1105.00.  We’ll stick with the anticipated range from the morning report, which is 1101.25 on the low end and 1107.00 to 1108.50 on the upper end. 

Housing Market Index is a minor market mover at 1:00 pm.

The Precise Take – ES down marginally overnight as interest rates are again in the spotlight

Leaders Analysis:   The US Dollar is up overnight, notably against the Euro as credit problems worsen for some of the EU member states.  The entire yield curve for US Treasuries gapped up on the 8:20 am open, and the Fed’s commercial paper funding facility (CPFF) rate, a proxy for the borrowing rates of companies to fund short term operations, has quietly edged higher since November 27, from 1.13 to 1.18 (unsecured).  Thus, it is becoming more expensive to borrow day by day.

Medium Term Analysis:    All eyes will be on CPI and the FOMC meeting tomorrow.  Statistically, FOMC days gap up and have a bullish edge until about 2:45 to 3:00 pm, whereupon there is profit taking.  CPI could throw a kink into the gap up scenario, however.  Depending upon tomorrow’s outcome, the aforementioned trends in interest rates could be halted temporarily if inflation and tightening expectations are abated; however, this will not cure the credit problems facing the sovereigns, and the trends will likely resume along with the rise of the US Dollar.  This will favor some companies over others, depending upon their trade bias and capital requirements.  It needn’t reverse the US equities rally, but we’re more likely to see low volume and range consolidation days punctuated by sharp moves from time to time (and probably overnight).

Trading Today:  PPI came out inflationary and is weighing on equities.  The ES has found support at the 1102.25 high volume level for the March contract, and is nearing the bottom of the projected daily range of 1101.25, which includes day-session-only S2 and combined session S1.  If this holds into the open, we’re willing to…

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11:10 am EDT:  So far, a quiet day, as expected.  The ES headed down initially and, though it bounced a few points off the lower end of the expected range at 1105.50, it took Friday’s day-session high of 1104.00 to provide more substantial support.  A new nominal low in the value area of 1101.25 to 1103.25 is still possible and, should the ES head higher, we would be surprised to see 1111.00 exceeded.  Careful entering positions in the middle of this range.

The Precise Take – ES at highs again ahead of quiet news day.

Leaders Analysis:   The US Dollar is showing strength lately, and this is what is likely limiting equities gains during the day session.  There will be strong downward reversal days that allow equities to trend, but until the short term trend reverses down again, intraday equities gains are likely to be limited.  The EuroYen reversed the upthrust it made on the Dubai news overnight and is not confirming equities strength.  This too will likely limit the possibility of a trend up day today in the ES.

Medium Term Analysis:    With no major news today, traders are looking ahead to Wednesday’s CPI and FOMC Announcement.  The Fed has been increasingly announcing policy changes through inter-meeting press releases, so we are expecting a generally dovish (equities bullish) announcement.  Assuming CPI comes within or below consensus, there should be little to encourage the shorts this week.  A hot CPI could, however, derail the bulls’ plans.

Trading Today:  Because the frequency of intraday moves has been shrinking, identification of the potential range is all the more important.  Overnight, the ES traded to just above weekly R1 at 1112.75 (actual high of 1113.00), after which it sold off and found support at a tick above day-session-only R1 at 1106.00.  We will play the expected range, looking for a long between…

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