2:35 pm EDT:  We’re seeing consolidation around VWAP and a break from the 910.50 to 914.50 range could see end of week continuation; however, most likely we’ll end with a fizzle rather than a pop today.  Per the earlier post, NQ bank index has broken out of the minor trendline resistance by merely staying put, while the KBW and XLF are still approaching resistance without breaking it.

Below is an update of the IWM:SPY and MDY:SPY charts we post from time to time.  The MDY (mid caps) ratio and IWM (small caps) ratio are each at resistance.  If they don’t break today or on a gap up Monday morning, we’ll likely see a reversion to lower support on Monday, with an eventual break one way or another deciding the next trend.

ES did find support at the daily pivot point of 908.50 and has returned to VWAP at 12.50.  If 13.50 (50% retracement of overnight and day range) is sold off, we’ll likely return to lows.  Otherwise, we could easily test the 917-919 area.

The Nasdaq banking index is trying to break up through minor trend line support, with the KBW bank index squeezed between two trendlines and XLV financials ETF running up to its 200 day moving average again.  A break up through these resistance points could spark a broader rally.

Market internals and price action so far suggests a range day, with yesterday’s low having been tested within a tick (909.75 low today) and the CT long from 10.50 having seen a nice 4 pt reversal.  However, as this is Friday we do not trust the morning range session to necessarily continue into the afternoon.  Consumer Sentiment was slightly above expectations, but failed to give the markets a boost, which gives us a bearish tilt.  As we write, the ES is again testing its 909.75 low and, should it break, we look for a test of the 901.25 Fib confluence area mentioned in this morning’s report.  Shorts can fade a rally into VWAP at 913.00, but should be careful as overnight highs could easily be tested.  We would prefer to hold out for 916-919, not wanting 922 to be exceeded.  Longs should enter above 909.75 not waiting around if it is breached, then looking for that 901.25 area to hold and go long at.

The Precise Take – Markets take first steps toward painting the tape into next Tuesday

Markets discounted a worse than expected Jobless Claims pre-open and rallied on [insert reason], with bonds also up on a good showing at the 7 Year Auction.  Bernanke’s low profile Announcement has so far been a success, with the minor reversal in equities and bonds on Wednesday, being overshadowed by yesterday’s material reversals for the better.

As we write, Personal Income released at 8:30 am was better than expected  and saw a surge into the countertrend high of 918.75 (high of 919.00) and has reversed downward.  [We never recommend taking countertrend longs around news, for the record.] As long as the markets can hold the daily gap area of 908.50 (with 909.25 an important 50% retracement for new longs), we expect…

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