The Precise Take – Markets consolidating Tuesday’s selloff

Big Picture Analysis:  The bad news keeps rolling in as this morning’s ADP Employment Report, a bellwether of Friday’s BLS Employment Situation report, disclosed only 15,000 jobs gained in June.  There are some reasons to be short term bullish into Friday, however, as the first day of July (tomorrow) has a bullish seasonality, as would Friday—if—the headline employment statistics come within consensus.  Days following sharp declines, such as that experienced yesterday, also tend to consolidate and produce a mild bounce.  Compounding trading in the short term, however, is a conspicuous head and shoulders on the S&P 500 that has captured retail’s imagination, much as a similar one did toward the end of June, 2009.  While we do expect the neckline to be broken decisively to the downside, in the spirit of the chief of staff, professionals would be remiss to let it go to waste by unfolding in textbook fashion.  There may first be a quick break of the ~1030 neckline in the ES only to rally 30 points and shake out the weak shorts.  Only a close above the 1172.75 high volume level suggests a…

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10:15 am EDT:  Market liquidity, as measured by proxy through the ES via a proprietary measure, had improved over the last few weeks, but just deteriorated significantly.  The last time it approached these levels from the downside (greater to less liquidity) was May 6.  This doesn’t mean there will necessarily be another flash crash, but that it is very easy to push prices around on low volume.  Caution is warranted with all positions.

The Precise Take – Markets broadcast risk aversion overnight

Big Picture Analysis:  The markets were relatively quiet yesterday, but once the consolidation structures broke overnight, there was significant follow through on no particularly significant news.  The last holdout in the ES is marked below in magenta, from 1048.00 to 1049.00 (it is price structure based, not volume based).  However, the odds are favoring an eventual break to new lows, the first target being the 1013.50 to 1017.00 support level.  A close above 1073.50, while unlikely, would suggest the overnight action was just a shakeout.

Leaders Analysis:  The 30 Year Treasury yield opened below 4.0% and the 10 Year below 3.0% this morning.  Correspondingly, the US Dollar is up, most notably against the commodity currencies of Australia and Canada, and is only weaker against the Yen—all deflationary signs.  The EuroYen broke 109.50 support and took out the June 108.06 low.  The level to watch over the coming days is 107.50 which, if taken out, could trigger another…

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Update: Figures for the 30 and 10 Year yields were corrected since the initial distribution.

The Precise Take – Markets relatively quiet as quarter draws to a close

Big Picture Analysis:  The ES broke out of its steep downward trend channel on Friday, and remains in its largest value area (blue, below) which extends from 1065.00 to 1082.00.  Failure to accept above on any rally attempt would also constitute a failure of the 20 day moving average, which would be short term bearish.  The next major target above is the 50% retracement of the recent down leg at 1096.25.  As stated Friday, acceptance below 1065.00 will likely lead to a retest and failure of the ~1040 support area.  On the news calendar, there are some housing related reports and ISM Manufacturing on Thursday.  However, the major report is Friday’s monthly Employment Situation.  The term “double dip” is increasingly making its way into main stream media outlets and equities have not been able to shake off…

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The Precise Take – ES attempting to hold critical support

Big Picture Analysis:  The ES has stairstepped down a steep trend channel this week, as can be seen below, having now reached the early June breakout yesterday and overnight.  We would not be surprised to see this trend channel broken today or Monday, which would suggest a modest rally.  However, if the ES can muster the strength to reach the 1094.25 to 1097.00 resistance area, short sellers should get aggressive there.  If the ES accepts below current support at 1165.00, there will likely be a test of the ~1040 lows, at which point the possibility of…

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The Precise Take – Equities down overnight toward critical support

Big Picture Analysis:  After retracing half of the entire down leg as of Monday’s open, the ES has now retraced over half of the recent gains.  Not even bullish FOMC seasonality could prevent further losses yesterday.  Though the selling pressure is not yet great enough to ensure the failure of the rally, sentiment is such that if the rally does not get back on track today or tomorrow, it is likely over.

Leaders Analysis:  The US Dollar Index is consolidating recent gains, and long term Treasury yields decisively broke to the downside over the last few days.  This would ordinarily get continuation, weighing on equities, but…

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The Precise Take – ES at support ahead of FOMC day

Big Picture Analysis:  Yesterday was a bit disappointing for the bulls as there was a clear rejection of the 50% retracement of the May down leg.  However, the ES has respected trendline support and continues to accept in its largest value area (blue, below).  Any probe below 1102.00 should be quickly rejected to confirm equities strength.  Acceptance below suggests sideways to down action.  A review of prior occurrences of days that gapped open above daily R3 (such as the ES did yesterday) reveals that more often than not, the ES consolidates for a week or two before its next move (with no particular directional bias as to the resulting move).  What could help equities in the short term is…

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The Precise Take – Risk markets up on Chinese currency depreciation

Big Picture Analysis:  We don’t have much to add to the now widely discussed news that the Chinese will be more flexible with its currency.  For now, risk markets are capitalizing on the news and are in a good position to continue the move this week.

Leaders Analysis:  The 30 and 10 Year Treasury yields finally broke their consolidating wedges to the upside and a confirming close should garner momentum.  The EuroYen is not as bullish, primarily because the news has put considerable pressure on the Japanese Yen.  After gapping down last night, the US Dollar Index is now net up from Friday’s close, primarily on Euro weakness.  Given some conflicting…

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The Precise Take – Markets quiet ahead of options expiration

Big Picture Analysis:  The ES appeared to be perched late yesterday for a closing swan dive, but managed the opposite, a bit reminiscent of the POMO tape paints of the early 2009 rally.  However, the ability to accept over the last three days above 1100 is important.  If the ES is to head higher, it would be normal to first probe below the lower end of the current value, just below 1100.  A rejection should launch an up leg.  Acceptance below 1100 would suggest a test of at least 1085.25.  It is also possible that an up leg ensues with no test of 1100.  We remain cautiously bullish as opposed to overtly because…

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11:41 am EDT:  The 30 Year yield has now broken below its consolidating wedge as shown below, and a close below would confirm bond strength and weigh on equities short term.   Also, while the Euro remains relatively strong against the US Dollar, it has dropped precipitously against the Swiss Franc as the SNB issued some hawkish statements early this morning.  The decline started yesterday, however, and could be indicative of capital flight from the Euro to the Franc, which has been concurrent with short term equities weakness in the last month.  Accordingly, we would expect to see 1108-09 act as resistance if the ES is to head lower.  If it accepts above, the early weakness would seem to be just a shakeout.