11:23 am EDT:  It looks like the scheduled Bernanke testimony was an error in Barron’s Econoday as it has been removed. 

The ES is a bit weaker than expected, with the day-session-only pivot at 1105.25 producing only a modest two point bounce.  The combined session pivot of 1103.25 is holding for now and, if it can continue to hold, there is a good chance to test the 1111.00 high made on the open.  If it breaks, the ES should reach the potential reversal area of 1098.75 to 1099.75, which includes Friday’s day session low and day-session-only S1.  It is unlikely the ES will trade below 1098.75.

The Precise Take – Markets poised to consolidate after tumultuous week

Leaders Analysis:  The EuroYen forex cross was able to just barely close over its 20 day moving average Friday.  Overnight, it took out last week’s high but is trading down a bit.  The 50% retracement of the down leg that began in January at 127.53 is a realistic target this week.  The US Dollar Index has rejected the higher levels reached on last week’s Fed announcement and is back in the prior range of 79.56 to 80.75.  The 30 Year T-Bond yield is at strong resistance and is probably topping, but it could take several weeks to put in its characteristic rounded top, meaning T-Bond futures will probably chop around sideways in the meantime.  Gold made a new high overnight just short of the 50% retracement of the November high to the February low, and has backed off a bit.  For today, the leaders are equities neutral, but the Dollar and EuroYen look as though they will make an equities bullish move by Wednesday.

Medium Term Analysis:  Equity indexes are looking strong, especially after the inability of the shorts to regain control after the Fed announcement post-close Thursday.  While we would not be surprised to see a pullback to either the 1094 or 1083 level in the ES, the 1127 target has a good chance to be reached over the coming week.  We will be watching the US Dollar closely as it appears ripe for a correction of 38% to 50% of the rally that began in late November.  A strong down move would help either…

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The Precise Take – Volatility overnight on Fed news and ahead of opex

Leaders Analysis:  As we noted intraday yesterday, the leaders have been giving conflicting signals, which should be resolved after opex today and with the big news from the Fed behind us.  The US Dollar Index rallied, as would be expected on the news overnight, to its next major long term pivot resistance area, from 81.11 to 81.42, with the 50% retracement of the entire down leg that commenced March 4, just above at 81.90.  We expect it post an interim top if and when it can get to this level.  As we write, CPI came in deflationary, and it could be we already have an interim top.  The other leaders are not confirming Dollar strength, with gold hanging on, 30 Year T-Bond futures only marginally up and the EuroYen the strongest, having only barely budged since yesterday.  All in all, the leaders are equities neutral.

Medium Term Analysis:  The topic dujour is the Fed announcement regarding changes to its primary credit facility, namely a 25 bp rate hike and minimization of the term of the facility from 28 days to overnight.  The former was expected as it was explicitly referenced in the last FOMC minutes, though the timing was not mentioned, and the latter should have been expected.  The facility was designed to be for emergency purposes only, but has come to be used for carry purposes instead.  Accordingly, we can expect the $14.3 billion in current borrowings to be wound down over the coming month, which is not a critical amount, but still a material liquidity drain.  The real drain has been the wind down of QE and, should the Fed raise the interest on excess reserves (IOER), we can expect a much more sustained equities-bearish reaction.  So, is this the end of the February rally?  A maxim that has served us well is that…

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10:33 am EDT:  Conflicting signals abound.  After selling off to the previous day’s lows pre-market, the ES has rebounded to the daily R1′s and is selling off again below VWAP.  The leaders have reversed somewhat, with gold and the EuroYen up, and the Dollar down.  We would have thought that this, along with the break above 1100 in the ES, would generate some more follow through for equities to the upside.  It could be that the proximity of the Nasdaq and Dow to their 50 day MA’s has limited buying interest or gotten shorts interested.  CPI and opex tomorrow are also variables.  Bottom line is that the markets should be more in synch by the end of tomorrow, and until then we will tread cautiously.

The Precise Take – Equities continue to consolidate ahead of CPI and opex

Leaders Analysis:  Two of the leaders did not confirm the equities strength yesterday as the US Dollar Index was up materially and the EuroYen stalled at the 20 day moving average.  However, 30 Year T-Bonds did sell off strong.  The EuroYen is down overnight, taking out yesterday’s low and the US Dollar is up, but has retreated from last Friday’s high.  If it sells off from here, equities have a good chance of a major up move.  If the Dollar breaks upward, equities will likely selloff, with any gains coming in fits and starts.  All in all, the leaders are slightly equities bearish.

Medium Term Analysis:  CPI and options expiration are tomorrow, then focus will shift next week to the first revision of Q4 2009 GDP, which likely be to the downside.  It is possible to envision either a retest of the January highs or a retest of the February lows a week from now.  Given the leaders’ stance, our bias is to the downside.  However, as we mentioned yesterday, if the ES is able to break above 1100, there is very little volume resistance up to 1127.  In addition, the 1060 to 1070 area has significant volume support, so it is more likely to hold than the previous attempt to build a base in late January and early February.

Trading Today:  As we write, PPI came in a bit hot and jobless claims disappointed.  The ES has found support for the time being near the overnight low of 1094.00.  The lower end of the projected range is…

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10:03 am EDT:  Somehow, yesterday’s s/r chart on page 2 remained in today’s report.  Corrected version is here:

http://www.precisioncapmgt.com/wp-content/uploads/Precision_Report_February_17_10.pdf

Nothing much else to add from the morning report, except there is an increased chance of a range day now.

The Precise Take – Equity futures to gap up again into critical resistance

Leaders Analysis:  The leaders made large moves yesterday in favor of equities, and some have now reached potential inflection points.  The US Dollar Index sold off to just above long term pivot, fib and moving average support, the EuroYen rallied to moving average resistance, and gold to nearly the 50% retracement of the down move from the early December high.  While there is a bit for the Dollar and gold to continue their moves, which would facilitate some further gains in equities, the potential for a reversal soon makes the leaders equities neutral. 

Medium Term Analysis:  The ES was able to push to the 1094.00 high volume level on the close yesterday and has pushed through to the upper end of its value area (dark green below).  Below, we added a volume at price histogram (orange) to track the down leg and subsequent rally, and it shows that the ES has nearly cleared all the major volume resistance.  Though there are other forms of resistance (50 day moving average, fib and pivot levels), the major one, volume, is nearly off the table.  A close over 1100 would suggest a run up to test the early January range of 1127 to 1148 is a good possibility.

Trading Today:  The lower end of the projected range contains the overnight low, the daily gap area and yesterday’s high, from 1092.50 to 1094.00.  The upper end is day-session-only R2 at 1103.50.  Chance of a gap fill, or at least half gap fill, within…

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The Precise Take – Equities to gap up on opex week

Leaders Analysis:  The leaders are mostly quiet overnight, with gold the notable exception and looking strong.  The US Dollar Index continues to trade just under strong resistance at 80.55, and has been unable to close above as of yet.  All in all, the leaders are slightly equities bullish.

Medium Term Analysis:  The abbreviated week will end with CPI and options expiration.  In the meantime, there is only a minor housing report today at 1:00 pm.  Tomorrow features five minor reports, including the weather-delayed Treasury Budget and FOMC Minutes.  At least one is likely to get the markets moving at some point. The ES traded up to 1086.50 overnight and looks like it will gap open at or just above the critical 1080-1083 resistance band we have been following.  The ES has retraced nearly all of the latest downward slide that began February 4.  Significantly, a lot of volume was traded at the lower value area between about 1059 to 1071 (high volume level = 1065.75), and it has a better chance of holding as support than the areas created in late January (and subsequently gave way easily).  The highest volume level for the March contract still looms overhead at 1094.00, so it will be important to watch how price reacts there and below at 1065.75.  It will likely take strong news to break through either of their respective value areas.

Trading Today:  There are a number of strong support areas that could have marked the lower end of the projected range today. We settled on…

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1:09 pm EDT:  For now, the ES has staved off a potential Friday meltdown, with trendline support at ~1060 holding earlier.  We do point out below, however, that this has been a volatile time of day over the last three weeks.  There are still rumors swirling regarding the Greece situation, so caution is warranted.

The Precise Take – ES weak overnight on further China tightening & ahead of 3 day weekend

Leaders Analysis:  Despite the mid-day bearish reversal in the US Dollar yesterday along side equities strength, the EuroYen did not confirm the move, closing down.  Overnight, it is down again and the US Dollar has broken through critical resistance.  If it closes above 80.55, the rally should continue next week, with the next target at 81.22, then the 50% retracement of the entire 2009 down leg at 81.86.  The long term Treasury auctions went poorly this week when we expected them to benefit from flight to quality.  One wonders what would have happened without the Greek situation.  Regardless, they have bounced from strong support and should be able to rebound next week.  All in all, the leaders are equities bearish.

Medium Term Analysis:  Equities cannot seem to catch a break, as yesterday’s rally was reversed on overnight news that China is taking further monetary tightening steps.  Fridays have been volatile lately, with the previous Friday first selling off, then rallying into the close, and the prior two Fridays selling off strongly to close near the low.  There is a bearish seasonality to the Friday preceding US President’s day, and with the markets closed Monday, today’s action will be important to gauge the bulls’ fear vs. the bears’ confidence.  There are some housing-related reports next week, but the focus will be on CPI and options expiration next Friday.  With the threat of near term tightening off the table, CPI may not be much of a mover.

Trading Today:  As we write, Retail Sales came in at the upper end of consensus and has not moved the markets much.  Consumer Sentiment at 9:55 am could.  The upper end of the projected range contains yesterday’s settlement and high, as well as high volume levels, from 1076.25 to 1078.00.  The lower end is 1063.25 to 1064.00 and contains the daily S1’s and fib support.   We give the possibility of a range day today at best 50% due to the aforementioned Friday volatility trend, with a strong move in either direction possible, down more likely than up.  The 1080 level has indeed proved formidable resistance and that is the nearby level to watch.  The possibility of a strong up move, though not likely, should be considered because…

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