10:33 am EDT:  After opening at support and rallying to S1 at 1205.00, there was a minor selloff, but a bullish Consumer Sentiment report at 10:00 am allowed traders to push through.  With the EuroYen at support and the Dollar at resistance, it would probably take an unscheduled news shock to take out the current low today.  1207.50 to 1208.75 is next resistance and contains yesterday’s low and gap area, which the ES is fast approaching.

10:40 am EDT:  After two gap fills, first upwards to the 4:00 pm close, then down to the 4:15 close, the ES rallied through yesterday’s 1207.00 high and challenged contract highs at 1210.50 within a tick.  As long as the current day session low of 1201.25 holds, there is a chance of upside follow through to the 1215.75 target.  However, should it be breached, it will look like a false upside breakout of the consolidating wedge on the daily, and we would expect a test of the lower end of the projected range from 1193.50 to 1195.00 and possibly 1189.75.

12:04 am EDT:  This is not the friendliest environment for day traders, as unscheduled news (such as the Moody’s downgrade of Greece today at 10:30 am) is leading to multi-point swings in a matter of seconds.  1195 is the level to watch for more reasons than one.  It’s the middle of the current two week range, as well as several pivot levels.  Right now it’s resistance, and we’re not interested in longs until it becomes support.  We see no particular significance in the current low of 1186.25, so if 1182.25 is broken, it’s possible we’ll see the next potential reversal area at 1182.00 to 1182.75.  If the ES manages to break above 1195.00, 1200.50 to 1202.00 is the target.

Update 2:40 pm:  Flipping through some other charts, it became obvious that 1186.25 is in fact the 20 day moving average, which acted as support on Monday as well.  The ES is tracing out a consolidating wedge on the daily, with the upper wedge trendline at about 1206 today.

11:42 am EDT:  The ES rallied on the open, sold off just shy of the upper end of the projected range (high 1207.50) and has now broken the lower end of the projected range and traded to the bottom of the current long term value area at about 1198.  Value longs should support this level if this is just a minor intraday selloff.  If the ES heads below 1198, it should test critical support at the weekly pivot/monthly R1 area, from 1194.50 to 1195.00.  1202.75 to 1203.75 is now strong intraday resistance.

Update 12:44 pm:  Given the strong bounce off 1198.25 and ability to power through the above resistance, it looks like this was just a minor intraday selloff.  Could nominally break the earlier day session high of 1207.50.

11:04 am EDT:  The ES rallied from the open and was able to reach 1193.25, which is near Friday’s afternoon high in confluence with the day-session only pivot.  The EuroYen and US Dollar are currently confirming equities strength.  Ideally, for the medium term bull case, intraday VWAP holds (currently ~1187.50) and the ES closes above Friday’s settlement of 1190.25, allowing for continuation upwards overnight and into tomorrow.  A close below 1190.25 or return to Friday’s low of 1182.75 intraday today could allow doubt to creep in regarding the financials’ strength.  Accordingly, on a move below 1187.50, we would hold out for longs until the potential reversal area of 1178.50 to 1180.00.

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10:42 am EDT:  The strength in equities continues with the ES breaking through yesterday’s high and the upper end of the projected range.  the daily R1′s at 1210.50 to 1211.00 are the next target above.  Given recent strength, the next major target of 1215.75 is a possibility. 1206.25 should serve as support on any pullback.  1207.50 is minor support.

Update 11:31 am EDT: The downside move off day-session-only R1 at 1210.50 was pretty quick.  1206.25 is still the line in the sand for longs.

1:22 pm EDT:  The ES opened at the daily R1′s but couldn’t rally out of the gate.  Having said that, the slow motion melt up has continued and all the major indexes except the Dow 30 are above their daily R2′s.  We don’t have any further resistance in the ES until weekly R2 at 1207.50, though this level needn’t be seen today.  The Fed’s Beige Book is released at 2:00 pm and, inasmuch as it is used by the FOMC to direct policy, could have an influence on the markets, though it will most likely be minor.

10:49 am EDT:  Yesterday’s settlement of 1192.50 proved an early sticking point, and now the lower end of the projected range of 1188.00 has given way.  The ES is finding some support at the weekly pivot in confluence with day-session-only S3 (current low of 1185.00).  If this level holds, this will have been only a minor shakeout, and the ES could close strongly.  However, the 1182.75 high volume level and trend channel support is a more tempting downside target and we would not be surprised to see it hit. 

1188.75 to 1190.00 is now resistance and a potential sell area.

3:43 pm EDT:  The green trend channel below noted in the morning report broke to the downside early and, after a rally and second failure  near yesterday’s settlement, the ES is finally in the process of relieving its overbought pressure.  There is strong volume support from two value areas that could nearly be characterized as one, from 1157.50 to 1171.25, being split at about 1165.50.  If the ES bounces off the top at 1171.25 then this will likely be a brief correction as there will be little temptation for those who entered in the prior trading range to attempt to get out at break even.  If the ES instead enters the range, then it will likely chop around and base inside until enough new longs can compensate for the exiting longs and shorts.  In that scenario, a test of the 1161.50 high volume level is likely. 

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We can see how the ES has just now bounced from the minor long term high volume level (highlighted in teal) at 1173.25 that is in confluence with today’s daily S2 pivot levels.  This is the kind of price (re)action that signals an end to a correction, however it is a bit soon and the bottoming pattern would be stronger were the cumulative volume at 1173.25 greater.  It does bode well for the health of this rally, however, that important value levels are being bought aggressively.