10:44 am EDT:  ES is testing yesterday’s lows after a worse than expected Consumer Confidence report.  We’re willing to short between 975 and 977, but if the ES cannot get back above 973.25 soon, we could easily head down to the next support area of 962.75 to 965.25, at which we would fade long with tight stops.  We’re not outright bullish until the ES can again get above 980, which we think is unlikely today.  Watch price action around the 1:00 pm Treasury auctions because a disaster (unlikely) would be enough to turn equities bullish.

Gold materially down from resistance and 30 yr/10 yr holding support today give a bearish tilt to the market’s direction this week and are forecasting successful Treasury auctions.  Also, the EuroYen forex cross, as a barometer of risk, has also materially corrected today in a bearish engulfing candlestick pattern. 

Accordingly, the most likely scenario this week that we envision is a down day today, up day tomorrow into the close because of POMO, retest of highs either by end of tomorrow or early Thursday, then heading down again into Friday close, with the markets attempting to find support and continue the rally sometime next week.  If we can reach new highs by early Thursday, then we could easily see another short covering rally into the 1008 target zone by Friday close; however, this is the less likely scenario.