Apologies for the multiple misses this week.  Everything should be back to normal next week.

With the benefit of watching the first 30 minutes, the regular charts have been prepared and are posted below.  While we have yet to see panic selling intraday, or even much selling conviction, the major indexes have been slowly bleeding through major support levels.  We’ve been eying the monthly pivot at 1297.25 in the ES as the last holdout for the bulls, and that was nearly reached this morning.  We would not be surprised to see a bounce from these levels, but would not attempt to fade long below ~1297 today.  Potential short areas/long targets above the upper end of the projected range (marked below) include the 1310.25 to 1310.75 and 1312.00 to 1312.75 resistance areas.

Apologies for the delay.  We’ll have some commentary out in a few minutes.

Quick note:

Bid/ask levels that showed 3000k contracts last week have dried up to low 3 digits (see below).  Some major liquidity providers have turned off their algos or, in the case of humans, have simply left the building.  We watched this phenomenon closely  over the summer.  One of two things should occur: tomorrow gaps up big, shorts cover and liquidity returns, or there is another major slide in the indexes.  As to today, short term moves are increasingly prone to erratic, wide swings. Caution is warranted.

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.

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.

12:36 pm EDT:  Though we have a new nominal high in the ES at 1113.50, the leaders are not confirming, in particular the EuroYen, which sits in the middle of today’s range.  Accordingly, caution with day trade longs is warranted at these levels.

Two quick things:

1) A reader correctly points out that the critical support area that includes the 20 day moving average for the ES mentioned in the morning report should be 1078-79, not 1178-79.

2) Day-session-only R1 (also the half gap) at 1091.50 held to the tick for the first 30 minutes, which suggests the possibility of a trend up day.  If that level is broken, we would expect at least a test of the lower end of the projected range at 1084.25 to 1085.50.

The ES opened above the upper end of the projected range and is testing yesterday’s high.  Our general rule is that if the daily R1′s at 1071.75 hold in the first 30 minutes, there is strong possibility of up trend day.  A failure should send the ES for a test of the half gap at 1064.00.

11:21 am EDT:  The key level we were watching was yesterday’s low of 1047.00 which was materially breached (low 1041.25).  While this now gives us a short term bearish bias, it is with some skepticism as the leaders did not confirm the down move.  Both the EuroYen and 30 Year T-Bond futures remain inside the prior day’s range, with the US Dollar Index largely flat.  Accordingly, it could be that we were too stingy with the 1047.00 price level.  If the ES accepts above 1050.00, it warns of a possible bear trap.  On the other hand, if the ES continues to accept below 1050, it sets the stage for a  down move to the 1016-1018 target area.

12:01 pm EDT:  The US Dollar Index broke through resistance, making it more likely that there will be upside follow through next week, correspondingly weighing on equities.  The ES was able to rally early, but was unable to capitalize on bullish seasonality, having now given up its gains and testing the support area containing the overnight low and weekly pivot, from 1076.50 to 1077.25.  While it is currently holding such support, upside potential looks limited absent surprise favorable news.