11:27 am EDT:  NYSE advance:decline ratio has broken support on a trendline in place since July 2 09, which based on history would mean an interim top (884.50) is in place until close Monday.  Shorts have been in control and we got a spike high that was quickly rejected on a weaker than expected Consumer Sentiment report at 9:55.  With no more scheduled news for today, the only chance for the longs was a $3.8 B permanent open market operation (POMO) by the Federal Reserve Bank of New York that was completed at 11:00 am and will allow large banks to leverage this money by 100x or more in a possible tape the paint scenario at end of day today.  See this and the prior morning’s report for more in depth explanation.  The short take is that because of yesterday’s POMO we would expect to see a bearish close today, but because of today’s POMO, which was greater than yesterday’s, we could get an artificial rally into the close.  Accordingly, if the ES cannot break 868.25 (S2) by noon, then take out contract lows of 865.25 by 2:00 pm, we would tighten stops on any swing shorts.

The Precise Take – Bulls fading quickly into the weekend, looking for a “surprise” to reignite

International Trade and Import/Export Prices released at 8:30 am have not moved the markets much and we only have Consumer Sentiment at 9:55 am and Geithner speaking at 10:00 am in terms of scheduled news.  See page 2 for an analysis of yesterday’s Federal Reserve Bank of New York’s permanent open market operations (POMO) along with yesterday’s actual time profile and today’s potential time profile.

We are bearish and don’t become bullish unless and until the ES can get over the daily gap/pivot area at 875.75 to 879.25.  Though 854.75 is our next downside target, the daily S3’s as calculated on the day-session-only and day+overnight sessions come in at 857.58 to 858.75 and we would look to take short profits there.  If the ES gets below the 854.75 level (unlikely), we would look for other short entries.  It is now looking like the ES will have to wait until next week to complete its up-probe in the head and shoulders pattern, and we are now only looking for …

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