Pre-open eMini SP 500 Morning Report 4.29.10

This is a guest post from Precision Capital Management

The Precise Take – Equity futures up on easing of sovereign concerns

Leaders Analysis:  Yesterday, the US Dollar Index cleared major resistance and entered territory it had not been in since May 2009.  Its character on breakouts is to retrace and consolidate a few days before heading higher and, as long as its 20 day moving average holds, we’ll expect a substantial rally to get underway over the coming weeks.  Its correlation with US equities has flip flopped from recently, tending to be positive on big news events (such as tomorrow’s GDP) and negative much of the rest of the time.  Given the Dollar’s recent strength is largely on Euro weakness, there is the potential for the correlation with equities to become positive most of the time over the coming weeks.  The EuroYen is up marginally and has room to rally if it can clear yesterday’s high, so the leaders are slightly equities bullish today.

Medium Term Analysis:  We wrote yesterday, “Since the March 2009 rally began, declines of greater than 2% have precipitated two scenarios: either a quick rebound with a low established the following day, or a more protracted correction.  Given the bullish FOMC day seasonality today, the former is possible, and tomorrow could confirm with a higher close and no new low.  We are leaning toward the latter, however.”  Given the overnight rally, yesterday’s low is unlikely to be broken, but we will put an additional qualification on the former statement and will need to see a higher close as confirmation.  The higher of the two is the 4:15 pm settlement at 1190.00.  The reasons for leaning to the “latter” yesterday have not gone away, so we’re still a bit skeptical of the recovery.  Acceptance above the monthly pivot at 1202.00, which is also the lower end of Tuesday’s early range prior to the selloff, suggests…

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