Pre-open eMini SP 500 Morning Report 4.5.10

This is a guest post from Precision Capital Management

The Precise Take – Equity futures higher ahead of large Treasury auction week

Leaders Analysis:  The US Dollar rallied off its 20 day moving average on Friday’s strong employment numbers, concurrent with the rally in equity futures.  The Dollar has been tracking equities recently on large moves, so the negative correlation could once be turning positive.  The EuroYen is down marginally overnight and, while the 200 day moving average is still the eventual target (bullish for equities), it looks as though it will retrace downwards a bit before venturing higher.  Long term yields moved up strongly on Friday’s report, and if they break the June highs, will see considerable follow through. This would eventually (but not necessarily immediately) weigh on equities as mortgage rates are already on the rise and higher long term borrowing costs would not be conducive to sustaining an already shaky recovery.  The gravity of keeping long term rates down is such that we have been calling for a top in yields, but that is increasingly not looking to be the case.  For today, the leaders are slightly equities bearish.

Medium Term Analysis:  After Thursday’s midday selloff, the ES closed strong and rallied impressively to new highs Friday and overnight.  With long term rates at critical resistance, the 3, 10 and 30 year Treasury auctions this week will be closely watched.  However, there are no top tier news items on deck.  Accordingly, equities should be able to stair step higher until at least next week’s CPI and Retail Sales on Wednesday.  Having said that, international news, such as the developing situation in Pakistan, could…

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