The Precise Take – Equity futures maintain gains overnight ahead of long weekend

Big Picture Analysis:  The equity bulls accomplished a lot yesterday, as they closed the ES in the next higher value area we have been writing about (purple, below), with a marginally higher high overnight at 1106.75.  It would be normal to test the breakout level of 1094.50 once more, but a close below the 1083.50 high volume level suggests sideways to down rather than resumption of the rally attempt.  Scheduled news is becoming more relevant, and in that regard we have Chicago PMI and Consumer Sentiment today, the former having led to some …

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The Precise Take – Risk tolerance slowly returning

Big Picture Analysis:  After a weak afternoon yesterday and bumpy start on the overnight open, the ES rallied over 35 points to 1092.00, and has backed off on a downward revised GDP report.  To continue the discussion from yesterday, to begin a rally with a chance of success, the ES still needs to break out of its current value area (red) at 1093.50 and accept in the next higher (purple), above 1100.50.  It has also formed an inverted head and shoulders, with a neckline at the upper bounds of the value area.  Should it break, the target coincides with the high volume level at 1126.00.  A close below 1061.00 means the bears are in control and points to lower lows.  Monday is a US holiday and most traders will leave early tomorrow.  With liquidity still depressed, it could be easy to…

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The Precise Take – Equities futures up as fear dissipates slightly

Big Picture Analysis:  After yesterday’s recovery from the overnight decline, it looks like the bulls are going to attempt a short squeeze centered around the upcoming three day weekend, not dissimilar from US President’s Day in mid February.  From a Market Profile perspective, the first hurdle is to accept in the next higher value area (deep purple, below), above 1101.50.  The last attempt to accept in a higher value area was on May 18, which failed and led to a large selloff intraday.  1101.50 is also resistance from the upper end of the downward sloping trend channel.  If a short covering rally ensues, it will likely be short lived, but could manage to reach the 50 day moving average at about 1160.  If the ES rejects the next higher value area…

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The Precise Take – Equities down sharply on continued Spanish fears

Big Picture Analysis:  The markets got no shot in the arm yesterday, and equities have punished longs overnight.  We mentioned yesterday that so-called Turnaround Tuesdays had been weak recently, and today is proving no different.  The only days that have been strong on average in this correction have been Mondays (notwithstanding yesterday’s weak performance) and Wednesdays, in the latter case not so much the gap as during the day session.  Accordingly, further downside into tomorrow’s open could make us very short term bullish.  However, until then we are bearish.  What makes anything other than day trade shorts risky is the possibility that a coordinated unscheduled news announcement could turn the markets around in seconds, including overnight.  We had believed such an announcement would come by yesterday.  It did not, but the risk remains.  The news calendar has taken a back seat to sovereign debt headlines, but Thursday, the first revision to Q1 GDP will be released, and we could actually make the case for…

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The Precise Take – Markets starved for good news

Big Picture Analysis:  After a shaky start, despite the strong day for equities Friday (and the suspiciously strong close), sentiment is incredulous as to rally potential.  With fingers hovering over the sell button, the markets probably need a big dose of favorable news to avert another quick and painful selloff.  We’ve been targeting today as a good candidate, but nothing has yet emerged from the weekend discussions in Europe.  From a seasonality standpoint, Tuesdays have been especially weak and Wednesdays…

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[Technical problems delayed the report this morning.]

The Precise Take – Round trip to crash lows on options expiration day

Big Picture Analysis:  Overnight, the May 6 low has been tested in the ES.  We’re still expecting a flashy short covering rally to commence today or Monday, but are careful not to attempt to step in early as markets can get more oversold.  We laid out one thing to look out for yesterday.  It may not unfold that way, so key resistance levels to watch are 1081.50, then 1101.25, acceptance above which would suggest a move to test the 50 day moving average is underway. 

Leaders Analysis:  As we write, long term Treasury yields are down sharply again from yesterday’s close, with the 30 Year below 4.0% and the 10 Year at 3.1%.  The 13 Week / 10 Year spread has collapsed to under 3.1% (a long term support level hit four times in the last year) for the first time since May 2009.  The last time it was breached going down, however, was late November 2008.  Interestingly, equities had a snapback rally during that time and inched higher into the end of the year.  The other scenario is that the 10 Year yield reverses intraday and the spread manages to respect 3.1% support on a closing basis, in which case it would the catalyst for a short term rally in the yield.  The prior four times when this occurred were concurrent with…

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1:07 pm EDT:  It took a while to get started, but sellers took hold again at about 10:00 am, taking the ES down to the daily S3′s, after which there was a relief rally up to VWAP.  The ES is now making new lows and the 1056 to 1060 major support level is in sight.  We have been anticipating a short covering rally at some point, and will repost one way in which it could get started.  From Gaming the Market:

PPT Day Characteristics

These moves typically occur after 2:30pm Eastern while the market is near a new low or breaking point, with a relatively high VIX.  Another characteristic is a large NYSE Adv/Decl negative ratio.  One that is negative 10:1 going into lunchtime typically assures a weak close.  Ratios of 3:1 negative aren’t what you want. They are easier to manipulate by weak bulls. You want a big scary ratio. It is these negative internals that can clue you into the probability of a PPT push.  A big push on a big negative internal is the tell. To instantaneously swing the market around on these days takes a massive amount of concerted capital.

If you watched the market every day last year you know what this looks like.  Using 5min candles on your favorite index you will see an immediate and massive full body candle, sometimes eclipsing the entire day’s range in minutes.  There is no mistaking this move. 

If the ES gets down to critical support in the next few hours, today would fit the above criteria.  It’s important not to front-run this setup as further downside is possible.  Just something to be on alert for.

The Precise Take – Risk off

Big Picture Analysis:  Fecklessness and ad hoc stopgap measures have allowed public confidence to deteriorate to the point where everyone is in extreme defense mode.  The curious strength in the Euro yesterday was due to the Swiss National Bank devaluing its currency against the Euro to offset some €10 billion in depository capital that fled German banks after the short selling ban took effect yesterday.  Such is the law of unintended consequences.  We are likely now beyond the point at which a short covering rally will lead to real strength; however, we are soon due for a spectacular short covering rally.  The problem with prediction is that it will be news driven and prices can fall further until that news announcement is made.  However, we can say it will likely be in the form of a comprehensive coordinated package to address the bad sovereign debt held by European banks, and it will likely be made by Monday—possibly as soon as today.  Once the euphoria wears off, it will be time to…

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The Precise Take – Risk at the Rubicon

Big Picture Analysis:  The bearish signals are adding up and we are quickly approaching the time at which institutional as well as retail bulls will throw in the towel.  It was at this point in early July 2009 and February 2010, when the bulls came through at the last minute and sparked short covering rallies that became sustained.  To wit, the S&P 500 issued a major sell signal yesterday in the form of the so-called death cross, the cross of the 20 day moving average under the 50.  It was just after the same occurrence in July and February that the short covering rallies began.  We have been looking for signs of a potential bottom this week up through as late as today.  Yesterday’s late day weakness after news of the German naked short selling ban may have been too damaging, however, as the ES is now accepting below its lowest established value area (below, purple).  If the ES cannot accept above 1126.00 very soon, we could be in for…

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Update 2:39 pm EDT: It looks like this selloff is in response to a half baked scheme to ban short selling in Germany with just a few hours notice.  The news could have major repercussions in the markets over the next few days.

2:24 pm EDT:  To continue the Market Profile-based discussion from the morning report, the ES failed just as it was entering the next higher value area and did not respect the 1126.00 high volume level after heading lower.  Accordingly, the ES will likely need to base more in the (purple) value area before heading higher.  Once it accepts above today’s high of 1147.50 in the next higher value area, it has a good shot at another up leg.  A break of yesterday’s low of 1112.75 should lead to a test of at least ~1098 support.