Short covering rally?

Pre-market weakness was bought yesterday and the down gap we had was filled within the hour. It looks to me that that was a retest of sorts for Thursdays lows. We did manage to break the 30min trend line and hold the 1260 area which I was thinking was a good spot to get long. We'll have to see whether we get continued follow through as I suspect the buying was also due to a bit of short covering and some new longs taking a stab before the Greek Confidence Vote later tonight and the FOMC announcement on Wednesday (positive seasonality heading into it). Certainly no one wants to be on the wrong side of either of these potentially market moving events (especially if Bernanke mentions or implies that QE3 might be on the cards).

Cumulative ticks finished at a very respectable +50,000 yesterday and breadth indicators were ok. SPY volume was a little bit below the 30 day median average so make of that what you will. It really is a wait and see kind of market now and I don't really expect a major move early in today's session until the Greek Vote goes through (I'm expecting and the market is expecting that the confidence vote will be ok and Greece will get access to further funds). As for FOMC Wednesday, I'm not sure if Bernanke will talk about more stimulus but we shall see. At this stage, I would think the bias has to be to the long side for now but expect things to be choppy. One noticeable thing is that yesterday was the first day in a while, where we did not get some type of afternoon sell off and we held into the close (which is a good sign for the bulls). More days like that and you might say the tide is beginning to turn.

Important levels on the ES are 1277, 1284 (resistance), trend line and pivot support at 1270. Further downside support is at 1260 with S1 at 1264. I'm expecting a pre-market pull back to the 1270 area which should set up a good long trade. Gap fade looks ok as long as we don't open below the open from yesterday.