As noted below, the S&P 500 is sitting just above its pullback limit that has been established since the beginning of this bear market rally. A break below 875 could mean the end of the Spring rally and the beginning of a vicious downward cycle. Should this break occur, it will represent a very big test for metals and metal shares as they attempt to decouple from the expected carnage.

Regards - VHF

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S&P 500 Pullback Reaches 5%

B.I.G.

May 13, 2009

The S&P 500's pullback from Friday's intraday high crossed the 5% level today. The current pullback is the third intraday pullback of at least 5% since the rally began on March 9th. With the S&P 500 on pace for its third straight daily decline (another first for this rally), the current pullback is also the longest.

A key level to watch on the S&P 500 is 875. The previous pullback in April ended when the S&P 500 traded down to the level of the March peak. If this decline is anything like the last, we would expect to see support at the peak of the April rally which was 875. If that level fails to hold, the next area of support comes into play at the 50-day moving average (~825).