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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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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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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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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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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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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Leaders Analysis:  After a volatile reaction to the report, it is too early to tell what the leaders are saying.  However, the US Dollar Index is up, along with the EuroYen and equities.  It is unlikely that correlations that have persisted for greater than a year have broken, and it may take a day or two for them to get back in line.

Medium Term Analysis:  The move of the ES into the 1127 to 1147 January high range is good for equity longs, but there is a historical tendency for gaps on the Employment Situation report to not only be filled intraday, but also get continuation in the direction of the gap fill.  For the medium term, the report can mark interim highs and lows.  The December 2009 report precipitated a mild two day correction.  The January 2010 report precipitated a seven day consolidation that became the 2009 rally highs.  We should note that this is only a seasonality, and…

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Leaders Analysis:  The leaders are not saying much as they are mostly in yesterday’s range, except for 30 year T-Bond futures, which have had a bearish week and are posting  a nominal new low for the week overnight.  They are, however, at strong support.  All in all, the leaders are equities neutral

Medium Term Analysis:  Nothing new to add from the previous days’ commentary.  Retail sales could be a market mover tomorrow if it’s not within consensus.  After that, nothing major until CPI the following Friday.

Trading Today:  Similar setup to yesterday, with the ES oscillating around VWAP overnight and looking like it will open around the day’s value area.  The upper end of the projected range contains the daily R1’s and yesterday’s high, from 1071.00 to 1072.50.  The lower end contains yesterday’s low and the daily S1’s, from 1055.50 to 1056.25.  There is very little resistance above 1072.50, up to day-session-only R2 at 1079.00, so this would be a good day for the bulls to attempt…

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Leaders Analysis:  The US Dollar Index sold off but subsequently bounced strongly overnight, the EuroYen has continued its advance, and 30 Year T-Bond futures are down marginally, but consolidating.  All in all, the leaders are equities neutral

Medium Term Analysis:  The ES had a bullish showing yesterday, but has advanced enough to get shorts interested.  It will need to clear 1109 to avert new lows.  Estimates for Friday’s Employment Situation are generally negative; however, the ES has a chance to rally on a consensus number.

Trading Today:  As we write, the ES is breaking down through strong support that includes the daily pivots, closing VWAP, and a long term high volume level, from 1093.50 to 1094.25.  Below that there is virtually no support to…

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Leaders Analysis:  The leaders are flat overnight, with the US Dollar still at critical resistance. 

Medium Term Analysis:  Uncertainty still looms regarding the Bernanke vote and to what extent banks will be affected by the new Volcker proposals.  With GDP on Friday, we expect volatility and a resolution of the fate of this correction. 

Trading Today:  On the morning of an FOMC Announcement day, the ES would typically be up by five points or more from the prior close; however, the ES has not been able to muster a move through closing VWAP at 1092.50.  If the seasonality holds, we should see a bullish day until after the Announcement, with downward move beginning anywhere from 2:30 pm to 3:00 pm.  As noted above, however, the day is…

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Leaders Analysis:   30 Year T-Bond futures have not been able to capitalize on Tuesday’s breakout, but have a good chance to rally on a tepid to cold CPI tomorrow.  Also, the 30 Year auction is today, but the auctions this week haven’t been producing much volatility.  The EuroYen is rangebound and not offering much guidance, and the US Dollar is up marginally from yesterday.  All in all, the leaders are equities neutral.

Medium Term Analysis:  Not much to add from yesterday’s commentary, except that the ES had its biggest day-session range since December 4 and intraday volatility is returning as expected. 

Trading Today:  As we write, retail sales for December came in below expectations and jobless claims came in at the upper end of expectations, which should both be bearish for equities.  However, the ES has barely budged, so the bulls appear to remain in control.  If the ES can break above yesterday’s high of 1145.25, there is a good chance of hitting…

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Leaders Analysis:   Once again the major move has been overnight, with the US Dollar Index reaching its first upside target of 77.82 to the cent, which is the 50% retracement from the June 8 interim high.  The 61.8% retracement is 78.68, and it will be important to monitor price action in this Fib box.  The EuroYen had been consolidating in a wedge just under its 50 day moving average and sold off overnight, and 30 Year T-Bond futures are now advancing off support.  The current trends will likely last until T-Bonds advance to moving average resistance in the mid 119 to mid 120 area.  Until then, equities will probably continue to chop sideways to down.  If there is a high in the USD Index for a day, then equities could climb back up toward the top of their range.  If 77.82 is materially exceeded, the ES will probably slide down further.

Medium Term Analysis:    As expected, the FOMC did not make any waves yesterday, though they did shorten the time frame for winding down Agency and Agency MBS purchases (QE) from the end of March 2010 to the beginning of February.  How the mortgage markets will function without the Fed as market maker remains to be seen; however, that is beyond the scope of the medium term.  We still expect an end of year rally, but it looks like weak longs need to be shaken out first.  After the ES failed to take out weekly R1 three days in a row, it was a good bet that there would be a return to at least the weekly pivot at 1096.50, which was why we picked this as a downside target yesterday afternoon.    

Trading Today:  The preferred early trade is to be long with a target of overnight VWAP at 1100.25 to the daily S1’s at 1101.75, where we may…

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Leaders Analysis:  Despite yesterday morning’s large gains in equities, 30 Yr T-Bonds pushed higher throughout the day, especially after Bernanke’s noon remarks.  Interestingly, the EuroYen trended lower all day and overnight, so both were non-confirming of equities strength.  Unless the 9:00 am Treasury International Capital report shows a flight from Treasuries and causes T-Bonds to reverse, their strength should catch up with equities today, and we would be surprised to see material equities gains.

Medium Term Analysis:  After PPI (out as we write), there are four more major reports in the next 24 hours, culminating with CPI tomorrow at 8:30 am.  An extreme divergence from consensus could always create volatility, but this should be a range day otherwise.  As we wrote yesterday, this has been about the time when previous month’s rallies begin their topping process.  This does not preclude new highs this week, but longs should be on alert, especially in light of the T-Bonds breakout yesterday.  

Trading Today:  The ES sold off yesterday’s settlement in confluence with closing VWAP all night (actual high 1107.00).  However, yesterday’s point of control at 1107.50 and weekly R1 at 1108.25 loom just above, which creates the possibility of an early bull trap with a break of the overnight high.  If that occurs, there should be a…

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Leaders Analysis:   The EuroYen has slowed its ascent as it approaches long term resistance, 30 Year T-Bond futures are resting at support, and gold continues to consolidate in a pennant formation.  This points to a pivotal week for the equities rally, but no clues yet as to direction.

Medium Term Analysis:  The two reports this week that will draw the most attention are Durable Goods on Wednesday and GDP on Thursday.  CS Home Price Idx and Consumer Confidence are also important tomorrow, and there are a number of large Treasury auctions that will be closely watched.  Swing and position shorts will be looking for entries on any minor equities rallies, so it will likely take an upside surprise in DG or GDP to force them to cover.  Next week features an FOMC meeting and the monthly Employment Situation, which will likely facilitate the ultimate directional move. 

Trading Today:  There is heavy resistance between the daily pivots and weekly pivot from 1080.50 to 1082.00, which provides the ideal early day trade short entry.  Just above, a long term market profile point of control at 1084.25 provides a protective stop.  We would not give that level more than a point on a short because…

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