This is a guest post from Precision Capital Management.
The Precise Take – ES back to bottom of range ahead of Quadruple Witching Friday
Leaders Analysis: Once again the major move has been overnight, with the US Dollar Index reaching its first upside target of 77.82 to the cent, which is the 50% retracement from the June 8 interim high. The 61.8% retracement is 78.68, and it will be important to monitor price action in this Fib box. The EuroYen had been consolidating in a wedge just under its 50 day moving average and sold off overnight, and 30 Year T-Bond futures are now advancing off support. The current trends will likely last until T-Bonds advance to moving average resistance in the mid 119 to mid 120 area. Until then, equities will probably continue to chop sideways to down. If there is a high in the USD Index for a day, then equities could climb back up toward the top of their range. If 77.82 is materially exceeded, the ES will probably slide down further.
Medium Term Analysis: As expected, the FOMC did not make any waves yesterday, though they did shorten the time frame for winding down Agency and Agency MBS purchases (QE) from the end of March 2010 to the beginning of February. How the mortgage markets will function without the Fed as market maker remains to be seen; however, that is beyond the scope of the medium term. We still expect an end of year rally, but it looks like weak longs need to be shaken out first. After the ES failed to take out weekly R1 three days in a row, it was a good bet that there would be a return to at least the weekly pivot at 1096.50, which was why we picked this as a downside target yesterday afternoon.
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