Pre-open eMini SP 500 Morning Report 1.22.10

This is a guest post from Precision Capital Management

The Precise Take – Equities looking to consolidate after two day losing streak

Leaders Analysis:  The US Dollar Index was not able to close above its December swing high and has rejected strong resistance.  Accordingly, it looks poised to retrace a bit of its recent gains, which should help equities.  The EuroYen tumbled yesterday to the bottom of its wide support band, broke through to the downside marginally overnight, but has recovered.  30 Year T-Bond futures were able to capitalize on equities weakness and push through strong moving average resistance.  However the 30 Year yield is now testing 50 day moving average support, which historically has given it at least a pause.  All in all, the leaders are equities bullish.

Medium Term Analysis:  The general chatter is that the rally that began in 2009 is showing major cracks.  While we agree, this does not preclude another run up or new material highs.  FOMC and GDP next week could be catalysts.  A major reason for the swiftness of decline yesterday was that the retracement was through an area that was traversed upward over the holidays on low volume.  The ES has settled into an area that has more volume support, so a repeat of yesterday is unlikely, and further declines, if any, are likely to be more orderly.

Trading Today:  We’re expecting a higher close, but there is a chance of a further washout after the open, down to the daily S1’s in confluence with weekly S3 (1101.00 to 1103.25), which marks the lower end of the projected range.  For this area to hold, we want to see…

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