11:46 am EDT:  After a brief rally on the open to within one tick of yesterday’s day session high (1138.25), a trend day down is materializing.  As an aside, this is the first time that weekly S1 has been penetrated since the last week of October 2009.  There is strong confluence support from the monthly pivot at 1106.00 to a high volume area at 1109.00, which also roughly coincides with trendline support on the 81 min at 1110.  This is the eventual target into tomorrow’s open.  We do believe there will be another test of the 1140′s, but we’ll have to see if the target support area holds before getting to excited about it. 

The Precise Take – Equities attempting to defend the two week trading range

Leaders Analysis:  The US Dollar Index broke through its December swing high overnight but has met strong resistance from its 200 day moving average and a 50% retracement from the May 18 09 high.  A close above 78.69 will signal traders that this is more than just a one leg up short covering rally and that there is more upside to go.  The EuroYen, however, is up marginally off its brief foray into the strong, wide support band we noted yesterday.  30 Year T-Bond futures have also stalled at their 50 day moving average.  All in all, the leaders are equities neutral, with the possibility of being tipped either way based on the US Dollar’s behavior today.

Medium Term Analysis:  The ES held support yesterday, just barely, and the longs managed a respectable close.  However, traders seem to increasingly lack conviction about the current trading range holding value.  Given the pattern we pointed out yesterday, longs will need to make a push to at least 1144.25 (weekly R1) and hold that area to prove they can move higher.  A quick rejection signals a likely return to and break of the bottom of the range (1125 to 1126) area.

Trading Today:  The upper end of the trading range today is yesterday’s day session high to just above day-session-only R1 (1138.50 to 1140.50).  The lower end is day-session-only S1 at 1126.75 to a high volume level from yesterday at 1127.50.  As we write, the ES is selling off to test…

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