Pre-open eMini SP 500 Morning Report 3.26.10

This is a guest post from Precision Capital Management

The Precise Take – Topping or shake out?

Leaders Analysis:  Yesterday’s afternoon rally in the US Dollar Index took it above 82.00 critical resistance we’ve been watching, though overnight it’s down again to yesterday’s low.  Yesterday’s action makes the chance a bit less that this latest surge is a false upside breakout.  Another close above 82.06 will make further upside likely, which will weigh on equities.  30 Year T-Bond yields have now broken through resistance which held in January and February and are now heading for the 2009 high that occurred in June.  If they break through 4.83%, they will enter territory not seen since the October 2007 high in equities.  Accordingly, with what’s at stake, a reversal in the coming days to the downside is more likely than a break through.  Long term yields and equities have been pretty much positively correlated, but this could reverse if they break resistance and start climbing rapidly.  We are watching the EuroYen again as the markets have settled after the QE news out of Japan the other day.  It is at 50 day moving average resistance, and a break through would send it to the neckline of an inverse head and shoulders formation.  Accordingly, there are a number of interesting patterns developing in the leaders that will be played out over the coming week.  For today, it looks as though the major moves were made overnight and the leaders are slightly equities bearish.

Medium Term Analysis:  Yesterday was the inverse of February 25.  Instead of an early move down to daily S3 and afternoon reversal to the upside, the ES moved early up to R3 (and also the next upside target) and reversed to the downside.  The close was just over the 1161.00 high volume level that we considered critical support and, as can be seen below, the overnight price action was contained by the blue value area.  The tops in this long term rally have been characterized by choppy, frenetic movements that often form a broadening megaphone pattern on the combined session ES.  Accordingly, it would be uncharacteristic to not have at least…

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