Pre-open eMini SP 500 Morning Report 5.21.10

This is a guest post from Precision Capital Management

[Technical problems delayed the report this morning.]

The Precise Take – Round trip to crash lows on options expiration day

Big Picture Analysis:  Overnight, the May 6 low has been tested in the ES.  We’re still expecting a flashy short covering rally to commence today or Monday, but are careful not to attempt to step in early as markets can get more oversold.  We laid out one thing to look out for yesterday.  It may not unfold that way, so key resistance levels to watch are 1081.50, then 1101.25, acceptance above which would suggest a move to test the 50 day moving average is underway. 

Leaders Analysis:  As we write, long term Treasury yields are down sharply again from yesterday’s close, with the 30 Year below 4.0% and the 10 Year at 3.1%.  The 13 Week / 10 Year spread has collapsed to under 3.1% (a long term support level hit four times in the last year) for the first time since May 2009.  The last time it was breached going down, however, was late November 2008.  Interestingly, equities had a snapback rally during that time and inched higher into the end of the year.  The other scenario is that the 10 Year yield reverses intraday and the spread manages to respect 3.1% support on a closing basis, in which case it would the catalyst for a short term rally in the yield.  The prior four times when this occurred were concurrent with…

Read the whole report here: