10:40 am EDT:  After two gap fills, first upwards to the 4:00 pm close, then down to the 4:15 close, the ES rallied through yesterday’s 1207.00 high and challenged contract highs at 1210.50 within a tick.  As long as the current day session low of 1201.25 holds, there is a chance of upside follow through to the 1215.75 target.  However, should it be breached, it will look like a false upside breakout of the consolidating wedge on the daily, and we would expect a test of the lower end of the projected range from 1193.50 to 1195.00 and possibly 1189.75.

The Precise Take – Equity futures to open near highs as turbulent week draws to a close

Leaders Analysis:  Overnight, the US Dollar Index rose to weekly R3 and backed off appreciably.  The high is also close to the yearly high of 82.24, so we are inclined to believe the rally will at least pause for a few days.  If the Dollar closes above 82.37, overhead resistance is scarce and the uptrend could continue for months, eventually testing the 86.00 level.  Accordingly, much is at stake for the Dollar, and of course the Euro, as it comprises 57% of the index.  Back to the short term, the EuroYen rallied into support and backed off a bit, so for this morning, the leaders are again equities neutral.

Medium Term Analysis:  As we updated yesterday, the S&P 500 is tracing a consolidating wedge pattern on the daily, and yesterday fulfilled the entire range.  The 20 day moving average has twice this week served as support on weak opening selloffs, so this will be an important reference point going forward.  It looks like the ES will open at the top of the wedge.  If it can push through 1207, there should be follow through up to the long term target of 1215.75.  Clearing this level by Monday would be beneficial for the bullish case as the Treasury auctions Tuesday through Thursday could be a…

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12:04 am EDT:  This is not the friendliest environment for day traders, as unscheduled news (such as the Moody’s downgrade of Greece today at 10:30 am) is leading to multi-point swings in a matter of seconds.  1195 is the level to watch for more reasons than one.  It’s the middle of the current two week range, as well as several pivot levels.  Right now it’s resistance, and we’re not interested in longs until it becomes support.  We see no particular significance in the current low of 1186.25, so if 1182.25 is broken, it’s possible we’ll see the next potential reversal area at 1182.00 to 1182.75.  If the ES manages to break above 1195.00, 1200.50 to 1202.00 is the target.

Update 2:40 pm:  Flipping through some other charts, it became obvious that 1186.25 is in fact the 20 day moving average, which acted as support on Monday as well.  The ES is tracing out a consolidating wedge on the daily, with the upper wedge trendline at about 1206 today.

In the morning report, we said equities have been sideways to down in the last week of the month since August 2009.  More precisely, it is the week that coincides with the long term Treasury auctions in the 2, 5 and 7 year tenors that tends to exhibit this behavior.  Usually, this is the last week, but not always.  The first of the auctions is the 2 year, which usually occurs on a Tuesday, but sometimes a Monday due to holidays.  Below highlights 2 year auction dates in magenta.  In addition, FOMC Announcement dates are highlighted in cyan.  With an announcement scheduled for next Wednesday, it is also instructive to look at the two occurances (in September 2009 and January 2010) when there was an announcement in an auction week.  This gives next week a bearish seasonality until the last of the auctions, the 7 year, is over on Thursday.  GDP on Friday could be a catalyst for a continuation of the rally, however. 

As always, seasonalities should be taken with a grain of salt as any number of other factors can override.

The Precise Take – Equity futures down overnight on financial reform and sovereign concerns

Leaders Analysis:  The correlation between equities to the US Dollar flipped back to negative this morning and, until it becomes more consistent, it won’t be much of a guide.  For what it’s worth, it should be able to rally and test the last swing high at 81.91.  Long term treasury yields are flat, but have further downside until they reach support.  The EuroYen is down, but at support.  For this reason, the leaders are equities neutral.

Medium Term Analysis:  Yesterday was ho hum until news regarding the impending derivatives legislation was released in the afternoon.  While the ES respected critical support at 1194.75 to 1195.00, it has broken it marginally overnight.  Ideally for the bullish case, it will rally early and not break this area again in the day session.  Otherwise, we could test the 1182.75 high volume level again.  It looks as though the ES will not be able to clear critical resistance at 1215.75 this week.  Going back to August, 2009, the last week of every month has been sideways to down, so it would not be unreasonable to expect…

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11:42 am EDT:  The ES rallied on the open, sold off just shy of the upper end of the projected range (high 1207.50) and has now broken the lower end of the projected range and traded to the bottom of the current long term value area at about 1198.  Value longs should support this level if this is just a minor intraday selloff.  If the ES heads below 1198, it should test critical support at the weekly pivot/monthly R1 area, from 1194.50 to 1195.00.  1202.75 to 1203.75 is now strong intraday resistance.

Update 12:44 pm:  Given the strong bounce off 1198.25 and ability to power through the above resistance, it looks like this was just a minor intraday selloff.  Could nominally break the earlier day session high of 1207.50.

The Precise Take – ES challenging highs

Leaders Analysis:  The EuroYen is down, having been unable to clear resistance since yesterday morning.  The US Dollar Index is up, but it has been positively correlated with equities since yesterday morning.  Notably, 30 Year T-Bond yields have gapped below support and should be able to move lower—a favorable development given the resumption of long term Treasury auctions next week.  All in all, the leaders are slightly equities bearish.

Medium Term Analysis:  Yesterday, the ES was able to accept above 1200 and rallied post-close on Apple earnings to 1209.50, then sold off to 1201.75.  It should be able to make new nominal highs over the coming days, but will probably not gain momentum until all major resistance is cleared and 1215.75 is exceeded.  Until that time, it is still vulnerable to unfavorable news, especially with respect to financial reform.  Having said that, as long as…

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The Precise Take – Overnight, equity futures continue yesterday’s late day rally

Leaders Analysis:  The EuroYen rose steadily yesterday and continued the rally overnight, reaching its first resistance level.  The US Dollar was down marginally yesterday, and again overnight into minor support.  No clear signals, so the leaders are equities neutral.

Medium Term Analysis:  Friday’s selloff on the GS news smelled like a shakeout, but on the break of Friday’s low yesterday, it looked like we might be in for a more substantial correction.  However, the news late in the afternoon relegated the event to political theatre and allowed a large cap rebound that led the ES to a close above major resistance.  One potential negative is that market breadth did not rebound as sharply yesterday.  Accordingly, with the ES set to gap open near Friday’s opening range of 1200 to 1206, we’ll need to watch price action there to see if the February rally still…

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11:04 am EDT:  The ES rallied from the open and was able to reach 1193.25, which is near Friday’s afternoon high in confluence with the day-session only pivot.  The EuroYen and US Dollar are currently confirming equities strength.  Ideally, for the medium term bull case, intraday VWAP holds (currently ~1187.50) and the ES closes above Friday’s settlement of 1190.25, allowing for continuation upwards overnight and into tomorrow.  A close below 1190.25 or return to Friday’s low of 1182.75 intraday today could allow doubt to creep in regarding the financials’ strength.  Accordingly, on a move below 1187.50, we would hold out for longs until the potential reversal area of 1178.50 to 1180.00.

The Precise Take – Markets still skittish after Friday’s news

Leaders Analysis:  Risk aversion has continued overnight, as the EuroYen is down from Friday, having briefly broken support and now just above it again.  The US Dollar Index rallied to just above, and is down slightly to, its 20 day moving average and long trend line resistance.  Long term Treasury yields are at support.  It’s possible each could reverse from here, but if the reversals do not come in the first half of the day, more than likely we will get continuance over the next few days with a bearish bias for equities.

Medium Term Analysis:  Without getting into the merits of the SEC/GS news that sparked the decline Friday, the question is whether this will be quickly discounted, allowing equities to resume their uptrend, or whether uncertainty will gain momentum and lead to a more material correction.  The ES’ long term high volume level at 1182.75 was bought aggressively Friday and was the low of the day.  To make the case for a quick reversal to the upside in equities, we would like to have seen more bullishness in the leaders overnight and for Friday’s low to hold.  It was violated only marginally this morning (actual low 1181.50), but the longer price trades in Friday’s lower range after the open, the less likely the quick rebound scenario becomes.  Ideally, the ES will show strength in the first hour and close above Friday’s settlement of 1190.25.  Besides regulatory impact speculation, earnings releases should dominate…

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