10:25 am EDT:  Chicago PMI was outright bullish and Consumer Sentiment improved, but was within consensus.  In a bit of market dejavu, the ES is down to its 20 day moving average on news that Goldman may face a criminal probe.  The difference between today and two weeks ago is that the distance to fall was not as far.  There is strong support from weekly S1, long term high volume level, and day-session-only S2, from 1190.00 to 1192.00.   A strong reaction off this level or above suggests this is just another mild shakeout.  If 1190.00 does not hold, there is no major support until 1182.75, at which point the recovery is in jeopardy.  Intraday resistance is now 1198.25 to 1199.25 and the initial breakdown zone at 1200.50 to 1201.25.

The Precise Take – Markets quiet after consensus GDP

Leaders Analysis:  The US Dollar Index and equities are both down slightly from the overnight highs on a consensus GDP.  The EuroYen has rallied into resistance.  No clear equities bias from the leaders today.

Medium Term Analysis:  Yesterday met all of the qualifications and then some to suggest that the worst is behind.  It’s important to be on alert for what can go wrong for the bulls, however.  The range has expanded each of the last two weeks to form another broadening megaphone pattern, with a larger range than the one that formed mid-January.  This suggests two things.  The true breakout area is about ~1220 in the ES, not the 1216.75 current contract high, and another violent move to the downside prior to clearing 1220 will probably get more follow through and signal a correction.  Unless and until that happens, we are bullish over the next…

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11:10 am EDT:  After a slow start, the ES finally rallied and is now testing the highest (price-wise) large high volume area at 1204.25.  An important clue of strength was that the daily R1′s in confluence with monthly R1 held (the morning report incorrectly labelled the latter as the monthly pivot).  1200 to 1201 is now support.  If the ES accepts above and builds volume through the day, there could be a retest of ~1215 into tomorrow and possible break through.  If this area is rejected, recovery of the rally could take longer.  A close below 1195.00 makes the recovery suspect and a close below 1190 (unlikely) means there will probably be lower lows.

The Precise Take – Equity futures up on easing of sovereign concerns

Leaders Analysis:  Yesterday, the US Dollar Index cleared major resistance and entered territory it had not been in since May 2009.  Its character on breakouts is to retrace and consolidate a few days before heading higher and, as long as its 20 day moving average holds, we’ll expect a substantial rally to get underway over the coming weeks.  Its correlation with US equities has flip flopped from recently, tending to be positive on big news events (such as tomorrow’s GDP) and negative much of the rest of the time.  Given the Dollar’s recent strength is largely on Euro weakness, there is the potential for the correlation with equities to become positive most of the time over the coming weeks.  The EuroYen is up marginally and has room to rally if it can clear yesterday’s high, so the leaders are slightly equities bullish today.

Medium Term Analysis:  We wrote yesterday, “Since the March 2009 rally began, declines of greater than 2% have precipitated two scenarios: either a quick rebound with a low established the following day, or a more protracted correction.  Given the bullish FOMC day seasonality today, the former is possible, and tomorrow could confirm with a higher close and no new low.  We are leaning toward the latter, however.”  Given the overnight rally, yesterday’s low is unlikely to be broken, but we will put an additional qualification on the former statement and will need to see a higher close as confirmation.  The higher of the two is the 4:15 pm settlement at 1190.00.  The reasons for leaning to the “latter” yesterday have not gone away, so we’re still a bit skeptical of the recovery.  Acceptance above the monthly pivot at 1202.00, which is also the lower end of Tuesday’s early range prior to the selloff, suggests…

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12:15 pm EDT:  It’s time to throw FOMC seasonality out the window as it is being overridden by more ratings downgrades, this time to Spain.  This does not mean a selloff is imminent, but that the usual eb and flow of this day should not necessarily be expected.  Having said that, barring a gift from the Committee in the form of an announcement more dovish than the last, it’s difficult to see how equities mount a recovery in this environment, with more ratings downgrades likely.  Incidentally, these downgrades appear to be coming at the top and bottom of each hour before noon.  If you are a very short term trader (scalper), it may be wise to be flat around the :00 and :30 in each morning hour.

The Precise Take – Equity futures paring losses on FOMC day

Leaders Analysis:  The US Dollar Index took out its yearly high yesterday and was up marginally early overnight.  A higher close than yesterday could kick off another rally with the first target of 83.34, then 83.67.  The EuroYen made a new monthly low yesterday, but has rebounded strongly overnight.  For this reason, the leaders are slightly equities bullish today.

Medium Term Analysis:  Since the March 2009 rally began, declines of greater than 2% have precipitated two scenarios: either a quick rebound with a low established the following day, or a more protracted correction.  Given the bullish FOMC day seasonality today, the former is possible, and tomorrow could confirm with a higher close and no new low.  We are leaning toward the latter, however.  The last correction began January 21 on a precipitous drop through the December low volume rally area.  In contrast, yesterday, the ES dropped through several high volume areas (see below), which suggests greater weakness.  As we said, tomorrow…

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Update 1:15 pm EDT:  @SpainConsultant (below in the comments): Yes, FOMC day has very bullish seasonality.  Rob Hanna at Quantifiable Edges just published a study that links the bullishness to closing the day before in the bottom 25% of the daily bar.  The bullish edge turns to bearish sometime between 2:30 pm and 3:30 pm tomorrow after the announcement.  This sets up a possible swing long into tomorrow’s announcement if today’s close is bad (bottom quarter of bar).  After the 2:15 pm announcement tomorrow, we’ll get some selling pressure and anyone wanting to short could do so then.  That means the real test of this rally is Thursday.  If ES closes lower on Thursday, then correction will probably last another week or two.  Otherwise, it will probably have been over already.

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Update 11:35 am EDT:  Greece was just downgraded to junk status.

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It took all of 30 minutes from the last post to get an unscheduled news event as Moody’s has now downgraded Portugal’s debt.  1194.75 to 1196.00 was strong support from the daily R3′s, monthly R1 and has now broken.  If the 20 day moving average and weekly S1, from 1190.00 to 1191.25, don’t hold on a closing basis, the rally is in jeopardy.  Having said that, the 20 day has been a buying point on the last two tests.  Below is an update of the chart we posted last week. 

10:33 am EDT:  After opening at support and rallying to S1 at 1205.00, there was a minor selloff, but a bullish Consumer Sentiment report at 10:00 am allowed traders to push through.  With the EuroYen at support and the Dollar at resistance, it would probably take an unscheduled news shock to take out the current low today.  1207.50 to 1208.75 is next resistance and contains yesterday’s low and gap area, which the ES is fast approaching.

The Precise Take – Equity futures down overnight on sovereign concerns

Leaders Analysis:  After two days of closing at its 20 day moving average, the EuroYen has sold off sharply overnight as the US Dollar rose.  Both have a bit farther to go to reach support or resistance, respectively.  Accordingly, the leaders are equities bearish today.

Medium Term Analysis:  We’ve been loath to comment on the Greek debt situation recently as it has been a red herring with respect to the US markets, but with yields on their short term debt skyrocketing to over 13% overnight, a nasty resolution is fast approaching.  Contagion could knock US equities down a few notches, but once the panic is over, the rally should resume on a flight to quality basis and on the strength of existing market internals.  The 1215.75 level we’ve been writing about is a long term equilibrium point for the ES.  Acceptance above should allow for…

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The Precise Take – Equity futures rally to new highs ahead of busy news week

Leaders Analysis:  The EuroYen rallied Friday, but has not been able to close above its 20 day moving average.  It was nominally above, but now below overnight.  Long term yields are consolidating just under resistance and look poised to continue the down move that began April 7.  However, poor demand at one of the large auctions this week could prevent this.  The US Dollar Index had a large down day Friday and, for the time being, the inverse correlation to equities has reasserted.  It is up nominally overnight after first taking out Friday’s low.  The leaders are slightly equities bearish for today.

Medium Term Analysis:  With an FOMC Announcement on Wednesday and GDP on Friday, it’s a full news week.  Though today is quiet, earnings announcements before and after the bell could cause some movement.  As we wrote last week, there is a bearish seasonality during the 2, 5 and 7 year auctions, which occur tomorrow through Thursday.  Having said that, the ES rallied overnight through 1215.75 resistance, which will probably limit downside.  It would be beneficial to longs to…

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