Pre-open eMini SP 500 Morning Report 1.7.10

This is a guest post from Precision Capital Management

The Precise Take – ES continues low volatility action ahead of Employment Situation Friday

Leaders Analysis:   We said we would be watching 30 Year T-Bonds and the US Dollar yesterday, the latter of which is very strong overnight, but still in its trading range.  T-Bonds have been hugging trendline resistance for three days now.  If they do not break to the upside soon, another leg down will be forthcoming (which would likely be on tomorrow’s Employment report).  Notably, the EuroYen was as strong yesterday as it was weak on Tuesday.  With it very close to breaking its Monday high, it will be a leader to keep an eye on as well.  Unfortunately, given the mixed bag, the leaders are equities neutral for the third day in a row.

Medium Term Analysis:  Employment Situation Fridays tend to mark reversal points.  As we are still at highs, we are more than likely to have an interim top with either downside action, or sideways then downside action.  That is, unless, the ES can manage a material rally and close near highs.  We will post a chart on the first update today (free registration).  The explanation for this phenomenon, which extends prior to the 2009 rally is likely that large players use the volatile number to extend a rally and sell into it, with reality catching up in subsequent sessions.  After institutional support evaporates, prices fall.  However, if equities have been correcting, the opposite happens and a new uptrend tends to start.  This latter case is largely limited to the 2009 rally.

Trading Today:  After exceeding weekly R2 by two ticks yesterday (high of 1135.50), overnight, the ES traded down to day-session-only R2 (1127.20).  The lower end of the projected range is about the same as yesterday, 1126.25 to 1127.25.  The upper end is a bit higher 1135.00 to 1136.50, as we will consider a nominal new high to combined session R1 (1136.50) as a potential bull trap.  Though we always consider it aggressive to attempt to pick a top or bottom outside the projected range, it is particularly so today, especially…

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