Below updates a previous chart we posted that breaks up the day into time segments (all times EDT) and plots net points for each period.  Since the January 2010 highs, the first hour is where most of the losses have occurred, even during the most recent upswing.  Since the February low, each other period in the rest of the trading day has been net profitable, though the closing hour the least so.  The 1:30 to 3:00 pm time of day has been the most profitable intraday period for longs since the 2009 rally began.

Looking farther back to 2001, we can see glean some interesting information.  The first hour of trading was consistently profitable beginning late 2003 during the last bull market.  It posted its high in July 2007, three months before equities actually topped.  It also bottomed concurrently with the markets in March 2009.  Similar to 2003, it was unable to trend up for most of 2010, but took off late in the year.  As previously noted, it has since retreated and we believe will need to start turning profitable if the January highs are to be taken out.

The only other time period that was consistently profitable during the 2003 to 2007 bull run was the overnight gap.  If it were to break its current trend line, that would be a very bearish sign.  What also emerges is that, contrary to popular believe, a profitable closing hour is not necessary to sustain a bull market, but may be necessary to start one.  The closing hour’s high was put in January 2004 and trended down thereafter.  The closing hour’s high in the current 2009 rally was established in September.  It may well be that smart money now trades at the open.

Accordingly, if we start seeing overnight gap-ups and profitable first hours, things may have turned around for equities.  If not, we’ll probably see lower prices in March.

The Precise Take – February poised to close on a volatile note.

Leaders Analysis:  Most of the leaders reversed yesterday in line with the afternoon equities rally.  The US Dollar Index is forming a consolidating wedge and is one to watch.  If it were to top this week, we thought it would have done so more convincingly by now; however, as long as it is consolidating, it can still do so, but needs to do so soon.  The 30 Year yield is trading at long term trendline support that has three points of contact since late September, having bounced most recently earlier in the month.  A break down should lead to a test of at least the 200 day moving average, currently at 4.40%.  A concurrent Dollar decline and equities rally is not out of the question, but would be slightly unusual, so this will be an important leader to watch.  A bounce would lead to a retest of the 4.75% level and possible break.

Medium Term Analysis:  Yesterday proved to be a difficult day to predict, as the 1082 to 1085 support level in the ES that we had dismissed the day before indeed proved to be strong support.  Overnight, the ES rallied but rejected the 1107.50 high volume level we have been watching.  Until the ES accepts around this area, it will not be able to move higher.  With three reports today between 9:42 and 10:00 am and rumors regarding Greek debt, there should be…

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