Pre-open eMini SP 500 Morning Report 1.20.10

This is a guest post from Precision Capital Management

The Precise Take – Equities looking to consolidate yesterday’s gains on strong US Dollar

Leaders Analysis:  The leaders did pause yesterday, just long enough for equities to post a sizable gain.  However, the US Dollar Index and EuroYen have resumed their trends, the Dollar now testing the December highs and the EuroYen in the upper end of a large support band that extends to May, 2009, which has held five times.  30 Year T-Bond futures look a bit stronger than yesterday after having rebounded from what could have been a sizable selloff.  All in all, the leaders are still slightly bearish.

Medium Term Analysis:  What a difference a day can make.  Though the ES was able to climb back to the upper end of its trading range, it is forming an expanding wedge (trumpet) formation on the daily.  Since the 2009 rally began, these patterns typically have led to a sharp selloff (sometimes as brief as one day) before resuming the uptrend.  Notably, this last occurred during the Q3 2009 earnings season in the fourth full week of October, which would line up with next week on the news calendar.  What this suggests is that, if longs cannot break the range materially and get another rally started by Monday’s close, downside rather than upside is likely.

Trading Today:  Given yesterday’s large range up, we expect consolidation of that move today.  The lower end of the projected range is day-session-only S1 in confluence with the weekly pivot from 1135.75 to 1136.00.  The upper end is yesterday’s high in confluence with contract highs from 1147.00 to 1148.00.  However, the ES may only be able to muster…

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