10:29 am:  Because the ES sold off 923.00, another push higher could too easily take out the 923.50 countertrend short, which is now canceled.

Market internals are moderately bullish.  Longs can enter at 918.00 or 916.00, or 913.00 but would not want to hang around below 912.00.  Shorts can fade the 926.00 Fib confluence resistance at 925.25 to 926.00 with a tight stop, but should not attempt to pick tops higher than that area and insteady wait for the ES to trade below 912.00

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1:55 pm EDT:  If we were going to get a sizable short covering bounce, we would like for it to have begun much earlier.  Markets did not react much to Obama’s plan for financial reform.  Accordingly, barring some out of left field news that sparks a rally, we are only making aggressive trade recommendations here.  915.00 to 915.50 is a Fib confluence area that aggressive shorts can fade.  Above that, we would not want to get short until the next Fib confluence area at 925.50 to 926.25 where the ES will be overextended.  Aggressive longs can enter at 910.50 or above, but should not stick around below 908.00.  If the market heads higher, it will likely be from here, so new longs will likely not get in unless they are willing to enter at what appear to be high prices relative to the day’s range.  Such is trading today.

10:16 am EDT:  So far quiet action with no Tick <-800 or >500.  As we wrote in the morningn update, XLF financial ETF and KBW bank index broke trendline support yesterday and Nasdaq bank index broke critical horizontal support of 1537 this morning.  Be on alert for surprise news announcement or Obama’s 12:30 pm EDT speech regarding regulatory reform, which could goose the financials and engineer a short covering rally if the proposed regs are not as onerous as markets are anticipating.  As always, we watch the 5 min candle for this, which should close at highs and on abnormally high volume.

902.00 was critical 61.8% support that held (902.50 low so far) and the ES has encountered resistance at the 907.50 50% retracement from the overnight high and the gap from yesterday’s close.  Longs can enter on a pullback to 905.00 or a retest of lows.  Shorts can enter on retest of 907.50, or anywhere from 909.50 to 911.00, but should not hang around above overnight highs at 912.75 as the ES is oversold and could quickly bounce on a short covering rally.

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12:48 pm For the Sep 09 contract, 911.75 is the last major 50% retracement (from May 17 low of 871 to the June 5 high of 953.00), which as we write is being tested.  To any shorts that entered on the test of 924.00, congratulations.  We are no longer in range trade mode and shorts may reenter at 915.00, then 917.25.

The ES just filled its gap hitting a low of 919.25, which is also a tick below the 61.8% retracement from the Globex range.  Longs do not want to break this level or we will likely get at least a retest of Globex lows at 916.25, possibly, 915.25, yesterday’s low.  Internals suggest rangebound action, so be on aleart for a false break down through resistance that is quickly reversed.  Shorts will enter at 921.75-922.00 and can fade a retest of the 924.00 to 924.75 day and Globex high areas.  Above that, and we expect short covering and are bullish.  Longs can enter at 920.00 while day session lows hold at 919.25 and can fade a test of Globex lows at 916.25.

Gold hit its 50% retracement off the most recent highs yesterday and has rebounded.  We’ll be watching if 926.90 holds as this could be a bellweather for equities.

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