New support and resistance levels before.  Expect night action to be contained by 871.25 to the downside and 882.50 to the upside.  In depth commentary on today’s action in tomorrow’s morning report.

11:30 am EDT:  No sooner did we press “Post” than the ES started its descent to new lows.  Accordingly, we’re only entertaining shorts as long s the price stays below 881.00.  Short entry areas are 874.00, then anywhere from 877.00 to 879.50.  Daily S1 has provided support at 870.25.  The next target is 866.50.

Market nervousness is intensifying with the VIX over 30 and the CBOE put:call ratio for all issues at the 3rd standard deviation level measured from the beginning of the March rally.  The last time it closed above the current level was on the gap down disaster day of March 30, which saw an intervention-style rally off a better than expected Pending Home Sales report two days later.  Accordingly, we are still  on alert for any five minute candle that closes on its highs on abnormally high volume.

The ES has been in a tight range, not having broken our 874.25 to 884.50 range, so things could be quite until the 10 Yr Note auction at 1:00 pm.

The Precise Take – Head and shoulders neckline holding on for dear life

The markets are in a very precarious position, with the March 09 rally in jeopardy of a more serious correction and all eyes on the head and shoulders pattern that has developed in the S&P 500 (the neckline in the ES continuous futures contract of 875.25 was tested to the tick yesterday).  Though the markets are still oversold and seem poised for a bounce the trading of the ES below 880 yesterday makes any bounce less likely to be substantial.  Today (per the chart on page 2), we will not look for longs unless 884.50 is taken out to the upside and will not look for shorts until 874.25 is taken out to the downside.  Depending upon early volume and volatility, we may play the range in between; however, there is a great risk of slippage on any stops below 874.25, such as on February 27 09 when the previous low of 740 was taken out pre-market and the ES had a 10 point drop in less than a second.  As if trading were not difficult enough, having to anticipate the other market players, we must also anticipate (more likely react to) the actions of an interventionist Fed and administration.  Accordingly, until 920 to the upside or 866.50 to the downside is taken out, we will be not be quick to jump on the medium term bullish or bearish bandwagon, though our long term monthly view remains bearish.  Shorts should be on the lookout for any interventionist five minute candle that breaks through resistance and closes on its highs on very high volume.

We have updated the downside targets in the right column, largely based on…

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