The Precise Take – Equity futures up with ES leading

Big Picture Analysis:  Though the ES went a point lower than we had anticipated (1298.00), Friday morning’s dip was another win for the bulls, as the ES climbed into the teens overnight (high of 1313.75).  As the news calendar is light this week, we’ll look ahead much farther today to assess the intermediate term possibilities of this rally.  Looking at a multi-decade chart of the 30 year T-Bond yield (inverse to price of the bond), there is a clear downward trend channel that begins in 1990.  The upper trend line that was most recently tested in April 2009 was exceeded with last week’s close at 4.74%.  Though there could be a spike to take out April’s 4.86% high, we believe there is a strong risk of downside reversal at these levels (punishing new T-Bond shorts), and the resulting correction in yield (rally in futures) could very well run into mid-July.  Looking at the liquidity picture, we had mentioned a few weeks ago that Treasury would wind down its Supplementary Financing Program, and this indeed began last Thursday as $25 billion in bills were allowed to mature.  This will occur for each of the next seven weeks as well, which is in addition to the near $30 billion in Treasury POMO being executed by the Fed.   It’s difficult to imagine concurrent, sustained rallies in both equities and T-Bonds (unless the Fed moves to direct more of its purchases in the 10 and 30 year tenors–entirely possible).  Accordingly, the behavior of T-Bonds should be an important clue in timing the top of this equities run (and it’s important to recall that the T-Bonds can lead equities by several weeks).  For now, bulls remain in control on all time frames.

Trading Today:  The lower end of the projected range includes Friday’s high and settlement, from 1307.25 to 1208.25.  We would also consider a long near the daily pivots and closing VWAP, from 1304.00 to 1305.00, but likely not below.  The upper end includes the overnight high and day-session-only R2, from 1313.75 to 1314.75.  We would also consider a short from day-session-only R3 and monthly R2, from 1321.25 to 1321.75, but likely not above.  No scheduled news today.

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The Precise Take – Equities up marginally ahead of quiet news day

Big Picture Analysis:  Friday was a quiet options expiration; however, the indexes held what we considered critical support and closed in their upper range, rallying modestly overnight.  Though 10 Yr T-Note futures did not close below the 125’15 level, they are trading below that level as we write.  Looking to the other leaders, the Euro is weak, though against the Yen it is very close to strong support from 107.9 to 108.0.  The Australian Dollar, after gapping down against the US Dollar and Yen, has recovered and is up sharply.  Accordingly, the leaders are suggesting some initial equities weakness that could reverse on a EuroYen bounce off support.  On the combined session 60 minute chart, the ES has formed an inverted head and shoulders pattern.  Acceptance above 1077 neckline suggests a rally to test the 1094.25 50% retracement level, where shorts will have the opportunity to…

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The Precise Take – Signs of risk preference reappearing

Big Picture Analysis:  It has been a volatile week, and that trend is likely to continue today, as the final European bank stress  test results are due to be released just after their close today, at noon EDT.  Yesterday, bulls were able to drive the ES, and comfortably close, in the green value area, below—what we considered a necessary first step prior to and potential bellwether of a breakout of the 1100 level.  If there is a pullback first, the yellow box, also marked below, from 1076 to 1079 should hold as support today or early Monday.  Otherwise, another perceived failure just under the 1100 level may give the bears too much ammunition.

Leaders Analysis:  We were watching primarily long term Treasury yields and the AussieYen.  The 10 Year Yield is up materially, though now at its old long-standing trendline resistance.  The AussieYen has just barely…

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The Precise Take – Equities still consolidating near highs

Leaders Analysis:  The leaders are mostly quiet overnight, and are equities neutral.  Focus will remain on the US Dollar Index’s consolidating wedge. 

Medium Term Analysis:  Yesterday, the ES tested to the tick the January 1148.00 high.  If we were to compare the current rally to that of July 2009, yesterday would be Tuesday, July 21 and today would be the July 22 inside day, with tomorrow the strong break up through resistance.  We note this because of…

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The Precise Take – Markets quiet as the S&P 500 tests the January high

Leaders Analysis:  30 Year T-Bond futures are down to moving average support, and the US Dollar Index is mostly flat.  The 10 Year Treasury auction is today and the 30 Year tomorrow, so long term rates will be reactionary instead of predictive.  The EuroYen and gold are slightly bullish, so the leaders for today are slightly equities bullish.

Medium Term Analysis:  The ES is accepting near the January high.  We remain bullish this week, but it’s difficult to predict when and how the breakout will occur.  If there is a retracement, any venture below the current value area that extends down to 1126.50 should be met with…

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The Precise Take – Markets quiet ahead of slow news week

Leaders Analysis:  The divergences in leaders correlation that we noted shortly after the report Friday was quickly resolved intraday.  The US Dollar retraced all of its early gains and closed on its low, and is down further overnight.  The EuroYen finally got the breakout we were looking for and is up nominally overnight.  The 30 Year T-Bond yield broke above its long term trendline but, with the futures having traded down to support, may continue to oscillate around the trendline.  Until it breaks definitively away from it, this market will not provide much predictive value.  The leaders look as though they will consolidate their moves and are, therefore, equities neutral.

Medium Term Analysis:  On Friday, equities showed great strength and should be able to capitalize by extending gains this week.  The ES is within striking distance of the January 11 high of 1148.00 which, interestingly, was posted the day after the month’s Employment Situation report.  The fact that market internals calculated by a variety of methods are making new highs suggests they should avoid a similar fate this time.  If not, there should at least be warning.  Having said all that, there is not scheduled news of note over the next two days, and little else until Friday.  It would be normal in this situation to see a…

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