The Precise Take – ES below trading range on opex

Big Picture Analysis:  Yesterday, the ES closed just above the lower end of its 1070 to 1100 range, but broke it overnight.  We’re willing to entertain the possibility that this is a shakeout; however, for the bulls to avoid another down leg to the 1018 to 1025 support area, they will need to assert control early today.  As far as the Fed’s Treasury purchases yesterday, they amounted to an above average $3.5 billion, but there was no immediate or delayed effect with respect to equities.  Until more data is generated, there is no pattern to trade.

The Euro is down about 1% against both the US Dollar and Yen, also down again against the Swiss Franc.  We were looking for a close in 10 Year T-Note futures below 125’15 to confirm a top.  Instead, they have…

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Going forward, the Big Picture Analysis will be combined with the Leaders Analysis

The Precise Take – Equity futures maintaining after disappointing Jobless Claims

Big Picture Analysis:  Despite two consecutive selloffs on the close, action on the daily chart for the major indices looks relatively benign.  With opex tomorrow, we shouldn’t read too much into any extreme intraday moves as long as the 1070 to 1100 range is respected on a closing basis.  In fact, a swift down turn to the low 1070′s to scare out the weak longs looks increasingly probable.  The Fed will also be purchasing another $2 to 3 billion in Treasurys today.  Whether it will be as supportive of equities as it was the first half of Tuesday remains to be seen, but the potential for volatility remains as there will be two economic reports released just prior at 10:00 am.  10 Year T-Note futures appear to have started their decline, though the overnight weakness was reversed sharply on the Jobless report.  A close below 125’15 (basis Sep 10) suggests an interim top, which would be supportive of equities on any future sharp down moves–but not necessarily so on…

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Going forward, the Big Picture Analysis will be combined with the Leaders Analysis

The Precise Take – Equities consolidating yesterday’s gains ahead of opex Friday

Big Picture Analysis:  The Federal Reserve Bank of New York conducted its first Treasury permanent open market operation (POMO) yesterday–the first such since October, 2009.  Long time readers will recall that there was a strong correlation between POMO days and paint the tape closes in the second and third quarters of 2009.  Yesterday was nearly the reverse, as equities rallied throughout the morning auction and shortly thereafter, but sagged on the close.  A sample size of 1 a trend does not make, but it to seemed to be a blatant risk-supportive signal.  Also noteworthy was the large decline in 10 Year T-Note futures, suggesting that their recent parabolic rise could have been mere front-running of the Fed–financial institutions bidding up coupon Treasurys in anticipation of selling them at a profit back to the Fed.  The amount of Fed purchases ($18 billion for the first month) is a bit less than 2009, so it remains to be seen if the 2009 effect can be duplicated.  It’s also possible the money will be directed…

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The Precise Take – Equity futures up testing multi day resistance

Big Picture Analysis:  After an early move down on yesterday’s open to the 50% retracement of the July rally, the ES is up solidly overnight just below major resistance, which extends up to 1091.25.  Any venture above this level will need to be quickly reversed or weak shorts will start covering.  50% retracements have been powerful over the summer, so 1097.00 should be watched.  However, at that level, there should be enough momentum  to get to the ~1105 area.  A failure below 1091 indicates sellers have remained firmly in control and another down leg should commence.  With no major news for the rest of the week, focus now shifts to…

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The Precise Take – ES at lower end of short term trading range

Big Picture Analysis:  Below, we see the ES has been in a trading range since late last week bounded by the blue and green value areas, from approximately 1070 to 1090.  Acceptance outside this range should kick off the next short term move.

Leaders Analysis:  The 10 Year yield has gapped down to the lower end of a support band that runs from 2.62% to 2.65%.  While we have been expecting a reversal starting as late as tomorrow, the overnight move suggests there may be fuel for continuation of the down trend.  The Euro is weaker only marginally against the Yen, but it is more so against the Swiss Franc, which could be an indication of…

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The Precise Take – Equity futures holding after no news surprises

Big Picture Analysis:  CPI and Retail Sales were within consensus this morning and have not moved the markets much.  Next week is quiet on the news front, with a few housing reports, along with TIC and PPI, on Monday and Tuesday.  Then, nothing major for the remainder of the week.  Short sellers should reappear on a move to 1090-93 in the ES or below 1070.00–in between is, thus, neutral.

Leaders Analysis:  Long term Treasury futures appear overbought and look ready to spike down on the first news that would support such a move.  TIC or PPI could do so.  Tuesday is also the Fed’s first Treasury purchase since the program ceased last year.  The amount will probably be about $2 billion, and it’s worth noting that…

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The Precise Take – Equity futures down again, as rally hopes rapidly vanish

Big Picture Analysis:  The equities indexes plowed through many support levels yesterday and overnight, which is probably the death knell for the rally.  In retrospect, the signs of institutional participation and high breadth were probably a result of record high correlation in the stock universe.  Going forward, we will tend to discount such information until the correlation lowers to normal levels.  Tomorrow, CPI and Retail Sales will be released before the open, with Consumer Sentiment 25 minutes after, which could make for a volatile end of week. The 1018-25 support area sits far below and is the next major target for the strong shorts.  It will probably take a close above 1105.00 to get them to cover.

Leaders Analysis:  Just as the EuroYen plummeted yesterday, the US Dollar Index rallied, and is up again overnight, with the 84.00 level a likely target into next week.  After more downside yesterday in the 10 Year Yield, it is nearly to strong support.  The rally in the 10 Year Note futures (inverse to yield) is likely overdone, and now that the QE Lite rumor is a reality…

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Update:  We just revised our estimate of Treasury QE to be $176.9 billion, or $14.7 billion per month.  Figures below are updated accordingly.

The Precise Take – ES down to critical support

Big Picture Analysis:  We mentioned the August trading range yesterday, which has seen both sides since the FOMC Announcement yesterday.  The ES is now trading just below what we considered critical support at 1103.50, and a close below this level will damage the rally.  If 1191.75 is taken out, odds favor a retest of the July lows.  Regarding the FOMC Announcement yesterday, the Fed’s portfolio has been steadily shrinking as a result of principal payments on mortgage backed securities.  It will now take its MBS and Agency cash flows and buy 2 to 10 Year Treasurys.  Based on current interest rates, our math suggests this will be $176.9 billion over the next year or $14.7 billion per month.  It remains to be seen if this will have the same equities ramping effect as it did in 2009, but we’ll keep a keen eye on the first few auction dates.

Leaders Analysis:  Equities finally caught up with the plunging yield on long term Treasurys, as the latter is now at 2.72%.  There is still a bit to go until 2.65% support is reached, and at that point there could be a slight relief rally.  The US Dollar Index broke through trendline resistance to reach its 20 day moving average at 81.75, and has backed off a bit since doing so.  The EuroYen and AussieYen are both down big (though to support) after consolidating ahead of FOMC day.  For today, it looks like…

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The Precise Take – Equity futures down on strong Dollar ahead of FOMC Announcement

Big Picture Analysis:  August has been in a trading range that should break soon, and by Friday at the latest.  There are still strong signs of institutional support, so our bias is bullish, but a close below 1103.50 would probably turn us bearish.

Leaders Analysis:  The 10 Year Yield is down marginally overnight, but we won’t read into to it until this afternoon’s news is digested.  The US Dollar is the big mover overnight, up against all the major crosses, with the Index up to trendline resistance.  If it backs off from 81.34 to 81.44 resistance, it should be supportive of equities, and if it powers through, look for more equities weakness.

Trading Today:  Today should gap down materially, which is rare on FOMC day.  In fact, the last such instance was September 18, 2008, and before that, September 24, 2002, then August 13, 2002.  The sample size is small, but for what it’s worth…

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The Precise Take – Equity futures back to interim highs after Friday’s shakeout

Big Picture Analysis:  After Friday’s late recovery and overnight continuation, the ES finds itself back to the 1125-30 resistance band.  With bullish FOMC seasonality kicking in at the close today, there is a very good chance it will finally break through by tomorrow afternoon.  The markets have priced in a slight easing, and should get it tomorrow.  Later in the week, Retail Sales and CPI on Friday will be the focus. 1103.50 has become major support, so if the ES does head down again, it needs to hold or we’ll probably see the strong swing longs exit.

Leaders Analysis:  10 Year Treasury futures continue to attract money and rally, yet costing the equities rally virtually nothing.  To expand on what we wrote Friday, the correlation between equities and the yield (inverse to the futures price) is only loosely positively correlated; however, large moves in the yield are…

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