…with no notable pullback with longs hitting asks in size at highs.  The day is looking a lot like May 18.  Per our morning report, 911.75 is the last holdout for the shorts.  Sometimes these days get large reversals in the afternoon.  Watch for a 5 minute pivot to be taken out along with the 1st standard deviation of VWAP after hitting resistance.

We’re seeing financials and health head lower, as most of the other sectors remain aloft.  We could see a retracement here and will look for support to hold at key 50% areas from the morning lows.  These areas are 898.50, 895.25 and 890.50.  If the market rallies off the first or second and makes new highs, we will consider that very bullish.  If 893.25 does not hold, it starts to look bearish, though we could still rally off the aforesaid 890.50 area.  Bulls throw in the towel for the day below 887.25.

We warned of a 5 minute candle on tremendous volume in this morning’s report as an indication of a possible reversal leading to a short covering rally.  While it did not close on its highs, the volume is greater than anything we’ve seen since the beginning of the March rally, and 900 was just exceeded.  Shorts beware.

Consumer confidence came in above expectations at 10:00 am and is propelling the market higher with broad sector partipation after the market was able to break from the consolidation area we noted in the pre-open report.  900.00 will serve as the next resistance area.  Volume has been above average compared to the past 10 trading sessions and NYSE advance decline is not indicating a trending day, but has been not as reliable as usual over the past coule of weeks.

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should set direction for remainder of day.  VWAP has been respected throughout lunch, so we have a slightly bullish bias.  Note declining volume relative to last 10 days in green subgraph.  Normally, we would not expect much for the rest of the day, but be careful as positioning ahead of the 3 day weekend could cause significant movement.

We wrote in our May 7 09 report that “As a barometer of risk, gold is beginning to tell us that we should be concerned about this equities rally.”  May 7 was indeed the high of this rally and we have updated the chart on page 1 of that report.  The 61.8% level marked “Must hold!” has not held (though it still could on a close only basis), and there’s little keeping this market from retesting at least the 1,000 level, except for the 970 swing high of March 20 09.  This bodes poorly for equities in the near term.  Gold and equities can move in the same direction, but major technical breaches, such as the trendline below or the 61.8% failure we’ve identified often signal turning points on or within a few days for equities.

ES will likely retrace through lunch unless it can push through 900.50 soon.

Internals opened slightly bullish but have headed south.  Yesterday’s early swing low of 882.50 has provided early support.  If we breach, we’ll likely retest 877.50 lows of yesterday.  It’s not looking good for the longs and we’ll need to get above 900.50 by 11:30 am to have a close that will avoid a selloff into the long weekend.  So far, tech is leading, so watch the NQ.

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