Pre-open eMini SP 500 Morning Report 2.1.10

This is a guest post from Precision Capital Management

The Precise Take – When will equities bounce?

Leaders Analysis:  The US Dollar Index made a new nominal high overnight but is now trading down after stalling at long term pivot resistance.  If the daily pivot at 79.27 cannot support price early, we would expect a return to the new weekly pivot at 79.00, which would relieve some of the downward pressure on equities.  30 Year T-Bond futures are trading at last week’s high, while the yield is at 50 day moving average support.  A close above resistance in the futures and below support in the yield would signal the trend is ready to continue.  The EuroYen forex cross is up from Friday’s close, but is not showing any particular chart pattern that is instructive with respect to equities.  The leaders are equities neutral until we see what T-Bonds and the Dollar Index do at these potential inflection points.

Medium Term Analysis:  Everyone wants to know when we’re going to get a bounce and how big it will be.  The longer the decline lasts, the more emboldened the shorts become, which means that it will take more effort to get them to cover.  The ES has been unable to break above the daily R1’s by more than a couple points since the decline began.  In addition, the opening hour, which had been bullish since October 2009, has been very bearish in January 2010.  And, the closing hour (3:00 pm to 4:00 pm) has been a disaster since January 21.  The bounce will probably begin with a gap up and an opening drive to above the daily R1’s, that leads to a trend day up.  Alternatively, it could be a range day that has a strong close above R1.  Either would signal an end of the decline to us.  However, we are not as confident as we were last Monday of a return to highs without seeing new lows first.  We expect to see at least 1099, but either 1099 or 1109 could be as far as the ES goes before another push down.  If the sovereign (Greece) debt issues or political uncertainty are resolved, that may be enough to force a short covering rally.  Otherwise, there is not much on the news calendar in the next two weeks that would provide such an impetus.

Trading Today:  The lower end of the projected range is a bit wide today, but necessarily so, as it includes the daily gap area and some support just underneath Friday’s low, which would make for a nice bear trap.  The upper end contains…

Read the full report: