The Precise Take – Equity futures up testing multi day resistance

Big Picture Analysis:  After an early move down on yesterday’s open to the 50% retracement of the July rally, the ES is up solidly overnight just below major resistance, which extends up to 1091.25.  Any venture above this level will need to be quickly reversed or weak shorts will start covering.  50% retracements have been powerful over the summer, so 1097.00 should be watched.  However, at that level, there should be enough momentum  to get to the ~1105 area.  A failure below 1091 indicates sellers have remained firmly in control and another down leg should commence.  With no major news for the rest of the week, focus now shifts to…

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The Precise Take – ES at lower end of short term trading range

Big Picture Analysis:  Below, we see the ES has been in a trading range since late last week bounded by the blue and green value areas, from approximately 1070 to 1090.  Acceptance outside this range should kick off the next short term move.

Leaders Analysis:  The 10 Year yield has gapped down to the lower end of a support band that runs from 2.62% to 2.65%.  While we have been expecting a reversal starting as late as tomorrow, the overnight move suggests there may be fuel for continuation of the down trend.  The Euro is weaker only marginally against the Yen, but it is more so against the Swiss Franc, which could be an indication of…

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The Precise Take – Equity futures holding after no news surprises

Big Picture Analysis:  CPI and Retail Sales were within consensus this morning and have not moved the markets much.  Next week is quiet on the news front, with a few housing reports, along with TIC and PPI, on Monday and Tuesday.  Then, nothing major for the remainder of the week.  Short sellers should reappear on a move to 1090-93 in the ES or below 1070.00–in between is, thus, neutral.

Leaders Analysis:  Long term Treasury futures appear overbought and look ready to spike down on the first news that would support such a move.  TIC or PPI could do so.  Tuesday is also the Fed’s first Treasury purchase since the program ceased last year.  The amount will probably be about $2 billion, and it’s worth noting that…

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The Precise Take – Equity futures down again, as rally hopes rapidly vanish

Big Picture Analysis:  The equities indexes plowed through many support levels yesterday and overnight, which is probably the death knell for the rally.  In retrospect, the signs of institutional participation and high breadth were probably a result of record high correlation in the stock universe.  Going forward, we will tend to discount such information until the correlation lowers to normal levels.  Tomorrow, CPI and Retail Sales will be released before the open, with Consumer Sentiment 25 minutes after, which could make for a volatile end of week. The 1018-25 support area sits far below and is the next major target for the strong shorts.  It will probably take a close above 1105.00 to get them to cover.

Leaders Analysis:  Just as the EuroYen plummeted yesterday, the US Dollar Index rallied, and is up again overnight, with the 84.00 level a likely target into next week.  After more downside yesterday in the 10 Year Yield, it is nearly to strong support.  The rally in the 10 Year Note futures (inverse to yield) is likely overdone, and now that the QE Lite rumor is a reality…

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Update:  We just revised our estimate of Treasury QE to be $176.9 billion, or $14.7 billion per month.  Figures below are updated accordingly.

The Precise Take – ES down to critical support

Big Picture Analysis:  We mentioned the August trading range yesterday, which has seen both sides since the FOMC Announcement yesterday.  The ES is now trading just below what we considered critical support at 1103.50, and a close below this level will damage the rally.  If 1191.75 is taken out, odds favor a retest of the July lows.  Regarding the FOMC Announcement yesterday, the Fed’s portfolio has been steadily shrinking as a result of principal payments on mortgage backed securities.  It will now take its MBS and Agency cash flows and buy 2 to 10 Year Treasurys.  Based on current interest rates, our math suggests this will be $176.9 billion over the next year or $14.7 billion per month.  It remains to be seen if this will have the same equities ramping effect as it did in 2009, but we’ll keep a keen eye on the first few auction dates.

Leaders Analysis:  Equities finally caught up with the plunging yield on long term Treasurys, as the latter is now at 2.72%.  There is still a bit to go until 2.65% support is reached, and at that point there could be a slight relief rally.  The US Dollar Index broke through trendline resistance to reach its 20 day moving average at 81.75, and has backed off a bit since doing so.  The EuroYen and AussieYen are both down big (though to support) after consolidating ahead of FOMC day.  For today, it looks like…

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The Precise Take – Equity futures down on strong Dollar ahead of FOMC Announcement

Big Picture Analysis:  August has been in a trading range that should break soon, and by Friday at the latest.  There are still strong signs of institutional support, so our bias is bullish, but a close below 1103.50 would probably turn us bearish.

Leaders Analysis:  The 10 Year Yield is down marginally overnight, but we won’t read into to it until this afternoon’s news is digested.  The US Dollar is the big mover overnight, up against all the major crosses, with the Index up to trendline resistance.  If it backs off from 81.34 to 81.44 resistance, it should be supportive of equities, and if it powers through, look for more equities weakness.

Trading Today:  Today should gap down materially, which is rare on FOMC day.  In fact, the last such instance was September 18, 2008, and before that, September 24, 2002, then August 13, 2002.  The sample size is small, but for what it’s worth…

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The Precise Take – Equity futures back to interim highs after Friday’s shakeout

Big Picture Analysis:  After Friday’s late recovery and overnight continuation, the ES finds itself back to the 1125-30 resistance band.  With bullish FOMC seasonality kicking in at the close today, there is a very good chance it will finally break through by tomorrow afternoon.  The markets have priced in a slight easing, and should get it tomorrow.  Later in the week, Retail Sales and CPI on Friday will be the focus. 1103.50 has become major support, so if the ES does head down again, it needs to hold or we’ll probably see the strong swing longs exit.

Leaders Analysis:  10 Year Treasury futures continue to attract money and rally, yet costing the equities rally virtually nothing.  To expand on what we wrote Friday, the correlation between equities and the yield (inverse to the futures price) is only loosely positively correlated; however, large moves in the yield are…

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The Precise Take – Equity futures plunge on employment news

Big Picture Analysis:  The headline employment statistics disappointed, but the question is by how much.  Employment Situation seasonality has not been reliable lately, but historically, gaps on headline statistics that did not surprise by too much would be filled, with the low or high of the day set in the first hour.  Accordingly, it is possible the downturn is merely a shakeout; however, lower lows after the first hour would suggest it is not and that the rally is in jeopardy.  Next week features an FOMC meeting on Tuesday and Retail Sales and CPI on Friday.  The meeting will be important as expectations of easing are being priced into the markets.

Leaders Analysis:  The 10 Year Yield has materially breached 2.90% support, hitting 2.85% on the news.  Unless it closes back above 2.90%, it is more than likely headed for the next support area of 2.65%, and could get there…

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The Precise Take – Equity futures down ahead of Employment Situation

Big Picture Analysis:  The ES continues to grind higher each day, but has not yet been able to clear its June high.  Though not mentioned here often, the Russell 2000 has formed a near perfect pennant pattern on the daily and its breakout should lead the way for the rest of the indexes.  It could come today, despite tomorrow’s big Employment Situation report.  Using the rally that began in February 2010 as an analog, tomorrow would be Friday, March 5, which helped power through the old January highs.  Whether or not the analog holds remains to be seen, but what can be taken away is that…

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The Precise Take – Equity futures up on ADP Employment

Big Picture Analysis:  There were signs the ES might stall at the current resistance levels–at least tread water until Friday’s Employment Situation report; however, a positive ADP gave a boost this morning to push the ES above its very short term downward trend channel (below).  As long as 1112-13 holds, equities should be able to push higher on the next bout of good news.

Leaders Analysis:  The leaders aren’t saying much this morning, but we’re still keeping a close eye on 10 Year Treasury futures, which made a new high overnight, while its yield continues to test the 2.90% level.  The FOMC will be meeting Tuesday, August 12, and it looks like some form of easing is getting priced into the markets, helping to explain…

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