Pre-open eMini SP 500 Morning Report 1.25.10

This is a guest post from Precision Capital Management

The Precise Take – Equity indexes look to rebound after last week’s selloff

Leaders Analysis:  The US Dollar is down marginally overnight and the EuroYen up marginally.  30 Year T-Bond futures are backing off Friday’s high and have not caught up with their yield, which is in last Tuesday’s range (notably, before last week’s selloff).  The discrepancy may be due to the huge Note auctions this week and the FOMC meeting.  We believed Friday that the US Dollar’s inability to push through key resistance would lead to a selloff, which would facilitate an equities rally.  As of yet this has not occurred, so equities may need to wait or get their boost elsewhere.  All in all, the leaders are slightly equities bullish.

Medium Term Analysis:  We expected a bounce Friday, which did not materialize.  And, with Friday’s large selloff, just about everyone is expecting a bounce now, including us.  It may take another day, however, with the ES chopping around until then.  This is because one of the more bullish seasonalities revolves around FOMC meetings, with the close of the day before (Tuesday, this week) until just after the announcement being very bullish.  In addition, GDP on Friday could come in greater than 5%, which would get the animal spirits moving again.  Accordingly, we expect the ES to retrace to at least 1126.25 by next Monday close (which is the lower end of the long term high volume area in blue, below).  The converse to all this is that, if there is another large selloff, there is something very wrong with the long term rally.

Trading Today:  The ES is poised to gap up between 5 and 10 points, which will alleviate some of the early selling pressure.  While we expect a range day and do not expect another selloff, longs should still be careful given last week’s poor performance.  The lower end of the projected range includes Friday’s settlement, some volume support and the overnight low, from 1091.00 to 1094.00.  A half gap fill (which can only be calculated after the open) may occur just above here.  If longs cannot defend 1091.00, then we would expect…

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