11:41 am EDT:  Paying head to the spike up and subsequent retreat on the 8:30 am reports this morning has paid off, as the ES has fallen, but found support at daily S2.  Though S2 was a potential reversal area marked in our morning report, we preferred to hold out for the 1008.50 to 1011.00 area before attempting any longs.  We will likely remain out of the market until after the 1:00 pm 7 Year auction.  If it comes out average or above expectations, we would expect a resumption of the down trend in equities for the day.  If it comes out poorly, equities could climb into the afternoon.  However, in this (unlikely) scenario, if the ES cannot break the day session high of 1027, by 3:30 pm, we would be wary of holding onto longs.

After further review of the 8:30 am reports and the prior days’ news, we find it bearish that equities have been unable to advance in the face of good (and at least not bad) news.  If the 7 Yr auction cannot move equities higher, there is still Personal Income and Consumer Sentiment tomorrow to close the week, but we do not expect an “upside surprise for economists”.  Further, even if equities head lower into tomorrow, the FRNY has announced today that it will conduct Agency POMO tomorrow, which tends to lift equities into the close, especially when the Thursday before was not itself a POMO day (as is the case this week).  All in all, while the prospects of higher highs in equities is looking dimmer into tomorrow, longs should not fear disaster unless multiple news items disappoint strongly.