11:51 am EDT:  All the news has been good today, perhaps a bit too good as it has facilitated a US Dollar rally, which in turn is weighing on equities.  The ES sold off precisely at day-session-only R1 (1093.25) and has now filled the 4:00 pm gap and entered the lower end of the projected range (1079.25 to 1081.25).  If this area does not hold, there is a small but real chance of another selloff like last Friday.  If it does hold, we would not be surprised to see a test of the earlier high.

The Precise Take – January 2010 continues to track October 2009 as month draws to a close

Leaders Analysis:  The leaders have been giving us some head fakes over the last few days.  The US Dollar Index punched through resistance yesterday and convincingly closed above its 200 day moving average and fib resistance and poked above weekly R1 overnight.  It should be able to hit longer term pivot confluence at 79.45 to 79.48.  The EuroYen is looking to put in a bullish reversal day.  Basically, these two are cancelling each other out in terms of an equities directional bias.  The tie breaker, 30 Year T-Bond futures are not telling us anything so, all in all, the leaders are equities neutral.

Medium Term Analysis:  We had previously mentioned the similarity of this month to last October, and the pattern continues roughly, except that the dates are not lining up exactly.  Q3 2009 GDP that month came out on Oct 29, a Thursday, and was reversed the next day.  It was the following Monday that looks like today’s candle (so far).  If the pattern were to continue, we would have an interim low either today or Monday with a sizable rally to follow.  The first two weeks of the month have been bullish since this rally began, so longs will need to assert themselves or risk a much more material correction as it will appear that things are, in fact, different this time.  In fact, delving into the internals and underlying stocks of the index, it does look a bit bleaker this time around.  So, while we have been expecting a bounce for several days now, it is all the more critical that it occur in short order.

Trading Today:  The lower end of today’s projected range is yesterday’s settlement of 1079.25 to yesterday’s high volume level of 1081.25.  The upper end of the projected range is combined session only R1 at 1097.00 to fib resistance at 1098.00; however, we would entertain…

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10:38 am EDT:  The ES is much weaker than anticipated, having traded nearly back down to monthly S1 at 1084.75.  1093 to 1095 is now a sell area.  If the daily S1’s cannot support at 1083.25, we don’t have confidence that yesterday’s low of 1078.50 will hold.  The  Bernanke vote could cause some late day volatility.    Until then, things should quiet down.

The Precise Take – Equities poised to rally on any favorable news

Leaders Analysis:  The US Dollar Index managed to close yesterday just above its 200 day moving average, but is back to its closing level after making a new high overnight.    The EuroYen forex cross, which is usually negatively correlated to the Dollar, has also sold off after being up overnight.  30 Year T-Bond futures have corrected off the 119 6/32 high and are down to 200 day moving average support.  All in all, the leaders are slightly equities bullish.

Medium Term Analysis:  After making a new nominal low on the FOMC report yesterday, the ES rallied into the close, not unlike the Mar 6 2009 [corrected 9:22 am] FOMC Employment Situation day, which kicked off the 2009 rally.  Bernanke’s fate will likely be decided by tomorrow and, should he be confirmed, we would expect an equities rally.  Non confirmation could lead to a selloff.  Tomorrow’s GDP would have to disappoint strongly to get an equities selloff, and it would actually be more bullish in the medium term to get a rally off a 3% to 4% number than a 5% one.  Wildly bullish numbers on major reports have tended to get reversed after a few days.

Trading Today:  Just above the overnight high is very strong resistance from the monthly and weekly pivots and a high volume level (1106.50 to 1109.00), and this marks the upper end of the projected range today.  It will probably take either GDP tomorrow or Bernanke’s confirmation to…

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2:41 pm EDT:  Initial spike was down, which retraced, but was unable to go down again and take out the initial low.  This continues to be an atypical FOMC day, so we should not necessarily expect a selloff into the close.  A close above 1094 could mean the end of this correction.

11:21 am EDT:  Just after the open, ES bounced off monthly S1 at 1084.75, but subsequently traded down to yesterday’s low at 1081.00.  This was in the 1080.00 to 1082.00 support area, but we said the later in the day the ES trades there, the less likely it is to hold.  Another return to this area has a good chance of breaking support.

Some notes about trading around the FOMC Announcement:  the release is usually a few minutes after 2:15 pm and there is typically a three wave pattern–a quick spike that may last seconds to a minute, followed by a retracement, then a resumption of the move in the initial direction that lasts from 15 minutes to 45 minutes.  After that, there is usually another reversal into the close, which has been to the downside over the last year and a half.  So far, the day is not behaving like a typical FOMC day.

The Precise Take – Equities trying to maintain ahead of FOMC Announcement

Leaders Analysis:  The leaders are flat overnight, with the US Dollar still at critical resistance. 

Medium Term Analysis:  Uncertainty still looms regarding the Bernanke vote and to what extent banks will be affected by the new Volcker proposals.  With GDP on Friday, we expect volatility and a resolution of the fate of this correction. 

Trading Today:  On the morning of an FOMC Announcement day, the ES would typically be up by five points or more from the prior close; however, the ES has not been able to muster a move through closing VWAP at 1092.50.  If the seasonality holds, we should see a bullish day until after the Announcement, with downward move beginning anywhere from 2:30 pm to 3:00 pm.  As noted above, however, the day is…

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11:04 am EDT:  The ES has demonstrated some marginal strength by trading above the daily pivots, though it has not been able to trade beyond the overnight high (also closing VWAP) of 1096.00.   We now have more confidence in the morning report’s projected range of 1084.25 to 1098.00.  The potential for surprise political news remains, so caution is warranted.  Absent that, we don’t expect any major moves today.

The Precise Take – ES floundering at lows on political uncertainty

Leaders Analysis:  The US Dollar is strong overnight on more China tightening hype and has refused to sell off from key resistance.  The EuroYen forex cross, as a barometer of global risk appetite, has sold off through support.  30 Year T-Bond futures have capitalized on the flight to quality and are up overnight.  All in all, slightly equities bearish, the “slightly” only because of the potential for reversal in the Dollar from the current level.

Medium Term Analysis:  While we expected some chopping around until the close today before the bullish FOMC seasonality kicks in, the material move down overnight puts a slight damper on the rebound scenario.  Having said that, the ES has retraced a good portion of the overnight losses as we write.  With Bernanke covering both the FOMC meeting today and tomorrow and meeting with senators to save his job, anything can happen. 

Trading Today:  The day prior to an FOMC Announcement is typically subdued, but political news could change that.  Further, given the numerous clusters of support and resistance and volatile overnight action, the projected range today is a bit arbitrary.  It could easily be as low as 1080.00 and as high as 1101.00.  We will instead focus on…

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The Precise Take – Equity indexes look to rebound after last week’s selloff

Leaders Analysis:  The US Dollar is down marginally overnight and the EuroYen up marginally.  30 Year T-Bond futures are backing off Friday’s high and have not caught up with their yield, which is in last Tuesday’s range (notably, before last week’s selloff).  The discrepancy may be due to the huge Note auctions this week and the FOMC meeting.  We believed Friday that the US Dollar’s inability to push through key resistance would lead to a selloff, which would facilitate an equities rally.  As of yet this has not occurred, so equities may need to wait or get their boost elsewhere.  All in all, the leaders are slightly equities bullish.

Medium Term Analysis:  We expected a bounce Friday, which did not materialize.  And, with Friday’s large selloff, just about everyone is expecting a bounce now, including us.  It may take another day, however, with the ES chopping around until then.  This is because one of the more bullish seasonalities revolves around FOMC meetings, with the close of the day before (Tuesday, this week) until just after the announcement being very bullish.  In addition, GDP on Friday could come in greater than 5%, which would get the animal spirits moving again.  Accordingly, we expect the ES to retrace to at least 1126.25 by next Monday close (which is the lower end of the long term high volume area in blue, below).  The converse to all this is that, if there is another large selloff, there is something very wrong with the long term rally.

Trading Today:  The ES is poised to gap up between 5 and 10 points, which will alleviate some of the early selling pressure.  While we expect a range day and do not expect another selloff, longs should still be careful given last week’s poor performance.  The lower end of the projected range includes Friday’s settlement, some volume support and the overnight low, from 1091.00 to 1094.00.  A half gap fill (which can only be calculated after the open) may occur just above here.  If longs cannot defend 1091.00, then we would expect…

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