12:19 pm EDT:  An early move down to long term volume support was followed by a rally to the upper end of the projected range (1168.75 to 1170.50).  The ES looks strong and the leaders are supporting, so a break through is possible.  First target is the 1173.50 to 1174.00 level.  However, momentum could take it to weekly R1 at 1177.75.  If the ES cannot break 1170.50, a return to the ~1164-65 level is likely.

The Precise Take – Equity futures down on disappointing employment report

Leaders Analysis:  Prior to this morning’s ADP Employment report at 8:15 am, the leaders were equities bullish as the EuroYen had broken through resistance, and the US Dollar Index had sold off sharply after taking out yesterday’s high.  However, that has changed as the EuroYen is back below resistance.  Interestingly, both the US Dollar and equity futures sold off on the news. With mixed readings in the leaders, there’s no clear bias yet.

Medium Term Analysis:  Just as traders look at ADP as a sneak peek at Friday’s monthly Employment Situation report, today’s PMI will be a look at tomorrow’s ISM Manufacturing report.  PMI has been a market mover recently when it is outside expectations, but don’t expect much if…

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The Precise Take – Equities continue to consolidate near highs

Leaders Analysis:  The EuroYen just barely breached its inverse head and shoulders neckline overnight and has backed off.  The US Dollar Index is down into its old trading range.  It could go a bit further, but will encounter strong support from 80.52 to 80.88.  30 Year T-Bond yields are in a consolidating wedge.  Again, the leaders are equities neutral.

Medium Term Analysis:  After a quiet day session yesterday, the ES is quiet again overnight.  There are some minor scheduled news items, but it’s difficult to project…

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The Precise Take – Equity futures to gap up marginally as Q1 2010 draws to a close

Leaders Analysis:  After closing lower Friday, the US Dollar Index sold off further overnight and entered its previous trading range, the upper end of which is serving as support.  It is still premature to confirm a false breakout, but so far that appears to be the case.  The EuroYen traded up through its 50 day moving average to the neckline of an inverse head and shoulders.  Should it close above, it would signal further equities gains in the coming weeks.  A potential blight is the 30 Year T-Bond yield, which stubbornly refuses to back away from long term resistance.  A break would generate significant follow through, which may spook the markets.  For today, the leaders are equities neutral.

Medium Term Analysis:  After a brief breach of the lower end of its current market profile value area (blue, below) Friday afternoon, the ES managed to close above its high volume level and continued to rally overnight.  Equities need to move higher soon or risk a profit taking drop, which needn’t be protracted in terms of time, but could be in terms of price, likely to at least the 1148 to 1150 level.  End of quarter is Wednesday, when focus will shift to…

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The Precise Take – Topping or shake out?

Leaders Analysis:  Yesterday’s afternoon rally in the US Dollar Index took it above 82.00 critical resistance we’ve been watching, though overnight it’s down again to yesterday’s low.  Yesterday’s action makes the chance a bit less that this latest surge is a false upside breakout.  Another close above 82.06 will make further upside likely, which will weigh on equities.  30 Year T-Bond yields have now broken through resistance which held in January and February and are now heading for the 2009 high that occurred in June.  If they break through 4.83%, they will enter territory not seen since the October 2007 high in equities.  Accordingly, with what’s at stake, a reversal in the coming days to the downside is more likely than a break through.  Long term yields and equities have been pretty much positively correlated, but this could reverse if they break resistance and start climbing rapidly.  We are watching the EuroYen again as the markets have settled after the QE news out of Japan the other day.  It is at 50 day moving average resistance, and a break through would send it to the neckline of an inverse head and shoulders formation.  Accordingly, there are a number of interesting patterns developing in the leaders that will be played out over the coming week.  For today, it looks as though the major moves were made overnight and the leaders are slightly equities bearish.

Medium Term Analysis:  Yesterday was the inverse of February 25.  Instead of an early move down to daily S3 and afternoon reversal to the upside, the ES moved early up to R3 (and also the next upside target) and reversed to the downside.  The close was just over the 1161.00 high volume level that we considered critical support and, as can be seen below, the overnight price action was contained by the blue value area.  The tops in this long term rally have been characterized by choppy, frenetic movements that often form a broadening megaphone pattern on the combined session ES.  Accordingly, it would be uncharacteristic to not have at least…

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The Precise Take – Equity futures recover overnight as US Dollar backs off resistance

Leaders Analysis:  After yesterday’s surge upward, the US Dollar Index made a new nominal high at 82.06 overnight and has since retreated.  Gold is respecting long term trendline support and is up marginally, and the 30 Year T-Bond yield is backing off long term resistance.  Accordingly, the leaders are equities bullish for today.

Medium Term Analysis:  With yesterday’s currency and interest rate shocks, equities had a good excuse to sell off, but did not materially do so.  The largest high volume level for the June ES contract of 1161.00 was respected to the tick.  All of this suggests higher highs in the coming days.  Only a close today below 1161.00 today would make us a bit suspicious of the rally.  Today at 10:00 am, Bernanke will deliver the testimony that was previously snowed off the calendar and…

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1:45 pm EDT:  The US Dollar Index has approached critical resistance that we’ve been writing about (81.90 to 82.00) and we will continue to monitor, as a break through could put a temporary halt to the current equities rally.  While the world is largely focused on Portugal, the Yen is universally weaker as a result of actions by the Japanese government that are de facto monetization of their long bonds.  This is helps explain why the EuroYen is higher in the face of a rising Dollar.  The Yen is simply weaker right now than the Euro, so the EuroYen may not be a leading indication of risk preference today. 

The normally stable spread between US and Japanese long bonds has also been sharply skewed, which explains the selloff in US 30 Year T-Bonds and spike in yields.  Low demand in the 5 Yr auction further spiked yields initially, but they are now retreating.  The price pattern on the intraday yield chart is usually associated with topping, but it looks like the 30 Year will close over a long term trendline on the daily, so there could be upside follow through despite heavy overhead resistance.  Markets are very sensitive to interest rate shocks because the bets are so heavily leveraged (notionals approach half a quadrillion USD).  

We wrote this morning that the rally in equities is still intact as long as ~1157 in the ES holds.  However, we would not go bottom fishing with day trades below 1160.75, which was the lower end of the projected range from the morning report.  All in all, the markets are at a critical juncture, but appear to be holding on for now.

The Precise Take – Equity futures down marginally on surging US Dollar

Leaders Analysis:  Overnight, the US Dollar Index finally broke through resistance and its six week trading range on a ratings downgrade of Portugal.  It has advanced nearly to critical resistance we outlined yesterday, from 81.90 to 82.00, which we speculated it may not be able to breach.  The EuroYen and 30 Year T-Bond yields are confirming this theory so far as they are both up, when existing correlations would have them down.  Having said that, it’s a bit early to become to emboldened in this claim until we see what price actually does if and when it reaches the resistance level.  Because of the mixed signals, for today, the leaders are equities neutral.

Medium Term Analysis:  Durable goods was a non-event, coming in positive but in the middle of the consensus range, so focus returns to the Eurozone debt and Friday’s GDP.  Next week will feature the end of the quarter with its accompanying window dressing and will close with the Employment Situation.  Equities should be able to increase their gains, but we will keep a close eye on the Dollar, as further strong advances could limit upside potential.  The ES has a well formed high volume area (highlighted below in blue) that should serve as good support.  Any venture below…

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The Precise Take – Equity futures at highs again

Leaders Analysis:  The US Dollar Index backed off resistance yesterday, but is up strongly again overnight to about where it was yesterday morning.  It looks like it wants to break up through its six week trading range, and would likely do so in the next few days as long as yesterday’s low is not materially breached.  However, just above the current swing high is the 50% retracement of the entire 2009 down leg in confluence with another 61.8% retracement.  This sets up the possibility of a false breakout, and we’ll need to watch price action around the 81.90 to 82.00 area.  For today, the Dollar could either reverse from current levels or head higher.  The other leaders are not saying much, so today, the leaders are equities neutral.

Medium Term Analysis:  There’s a lot going on today, with Geithner and Vice Chairman of the Fed Janet Yellen speaking today, along with a housing report and a 2 year note auction—not to mention the zombie Greece saga is back along with the controversial health bill being challenged.  Accordingly, we expect…

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The Precise Take – Equity futures to gap down into support

Leaders Analysis:  The US Dollar Index is up marginally overnight after rallying strongly the previous two days.  Though intraday it has been higher this year, it has yet to close above 80.85.  Accordingly, on the first test of this area in several weeks, it is unlikely to break through.  The EuroYen is hugging its 20 day moving average and 30 year T-Bond yields are at resistance.  All in all, the leaders are slightly equities bullish today; however, the overnight low in the EuroYen forex cross needs to hold intraday.

Medium Term Analysis:  With no scheduled news today, the markets will digest the health bill passed over the weekend.  This will be the first Monday since September 21, 2009 to materially gap down.  Last Monday began with a minor down gap and, after a flush of weak longs, closed the day strongly.  We could see a similar setup today.  Durable goods Wednesday will be a sneak peak of Friday’s GDP.  We would expect to see the bottom…

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