10:46 am EDT:  Equity futures are stronger today than we anticipated with the Nasdaq and Russell 2000 strongly outperforming, faciliated by the Dollar selling off before reaching our projected target.  While the ES has encountered some resistance at the daily R1’s from 1139.75 to 1140.00, it could later hit the daily R1’s  from 1142.25 to 1143.00.  1135.25 to 1136.00 is our preferred buy zone, but the ES may only manage a milder retracement to 1137.00 to 1138.00.

10:39 am EDT:  It looks like the Employment Situation seasonality will not hold today, as the gap did not fill and R1’s held as support, which is an early warning of a trend day up.  All the major US equity indexes are now trading above daily R3.  Next week, the ES should be able to test the 1147 January high, but without any major news until Friday, there will probably be some back and fill.  An (unlikely) close today below 1125 would negate this scenario and set up the possibility of a downwards correction instead.

10:43 am EDT:  After a test of yesterday’s high, the ES failed on a disappointing Pending Home Sales two points below at 1123.00 and has now broken the lower end of the projected range.  It will probably find some support in the 1113.00 to 1116.00 area, but we made the lower end of the projected range higher than usual because of the risk of a larger selloff.  Indeed, there is a head and shoulders developing on the 60 minute with 1113 to 1116 as the neckline depending on whether day-session-only or combined session data are used.  The daily pivots at ~1119 should now act as resistance.  A break above keeps the medium term rally in tact.

11:12 am EDT:  After several attempts, the ES finally broke through 1122.75 resistance and is heading to the next resistance level of 1126.00 to 1127.00, which includes day-session-only R2 and the upper end of the volume gap.  Above lie major resistance from weekly R2 at 1128.50, day-session-only R3 at 1129.25 and monthly R1 at 1130.50.  Although the projected range was broken, it took a while and low relative volume does not suggest there will be a trend day.  This implies that there should be a shorting opportunity somewhere between 1126.00 and 1130.50; however, we cannot project exactly where ahead of time and would need to rely on price action.  As always, fading a move outside the projected range is aggressive and requires experience to execute.

10:37 am EDT:  ISM came in with a Goldilocks reading of down slightly from January, but within consensus, which is bullish for equities because too-strong would have rallied the Dollar and too-weak would have hurt confidence.  The Dollar and T-Bonds are down, but curiously, so is the EuroYen, perhaps out of Eurozone weakness.  Accordingly, while further gains in the ES to weekly R1 at 1116 are in the cards today, a trend day up is unlikely.  To facilitate further gains today, we would want to see VWAP hold around 1109.  Otherwise, a test of the lower end of the projected range is likely, from 1102.00 to 1103.50.  We’ll have to issue the standard caveat regarding surprise political news (which has occurred frequent recently), but otherwise, we don’t see an impediment to an equities rally over the next few days as there is no major news until Friday’s Employment Situation.

10:37 am EDT:  Despite the strong gap down and negative breadth, the day session is relatively quiet with no extreme NYSE Tick readings.  Barring a surprise news event, we don’t expect a trend day down.  1092.50 to 1093.75 should still provide enough resistance to get a day trade short out of it.  We would peg the max low at at 1082.75 and the max high as 1096.25 to 1097.  A close above 1097 keeps the bulls alive for another day and points to a possible bear trap this morning.  A close below 1090 still presages a test of the 1060 to 1070 area.

1:11 pm EDT:  The Bernanke testimony provided some early volatility, but not too much as the projected range was fulfilled within a few ticks on each side.  Impressively  for the bulls, the ES has advanced and is now accepting above the projected range, but still below the value area highlighted below in magenta.  We said in the morning report that we wanted to see acceptance at about 1107.50 to facilitate the next multiday rally.  This is the high volume level for this value area and would indicate the ability to spring higher.  Until that happens, the shorts will hang on.  With the 5 Yr auction over and the ES having consolidated since the morning, we should now get an afternoon move.  1099 to 1100 should serve as support for day trade longs to hang on.  We no longer like a short from 1106.25 to 1107.50.

10:17 am EDT:  The ES traded up to yesterday’s settlement and hovered around until Consumer Confidence came in far below expectations and gave traders a good excuse to move the markets.  The ES is testing strong support of 1094 as we write, but now has a good chance of correcting lower into 1082-1085 today or tomorrow.  ~1099 is now a sell zone.

11:23 am EDT:  It looks like the scheduled Bernanke testimony was an error in Barron’s Econoday as it has been removed. 

The ES is a bit weaker than expected, with the day-session-only pivot at 1105.25 producing only a modest two point bounce.  The combined session pivot of 1103.25 is holding for now and, if it can continue to hold, there is a good chance to test the 1111.00 high made on the open.  If it breaks, the ES should reach the potential reversal area of 1098.75 to 1099.75, which includes Friday’s day session low and day-session-only S1.  It is unlikely the ES will trade below 1098.75.

10:33 am EDT:  Conflicting signals abound.  After selling off to the previous day’s lows pre-market, the ES has rebounded to the daily R1’s and is selling off again below VWAP.  The leaders have reversed somewhat, with gold and the EuroYen up, and the Dollar down.  We would have thought that this, along with the break above 1100 in the ES, would generate some more follow through for equities to the upside.  It could be that the proximity of the Nasdaq and Dow to their 50 day MA’s has limited buying interest or gotten shorts interested.  CPI and opex tomorrow are also variables.  Bottom line is that the markets should be more in synch by the end of tomorrow, and until then we will tread cautiously.