Posts by Rod David
Post-open Review… Tip-toeing higher.
Gap up maintained and overnight rally extended.
Weak bases make weak rallies. But they can still make rallies. The secret recipe to extending a weak base’s rally is to keep pullbacks relatively shallow and/or brief. 
Excessive optimism can be very effective, until it’s not.
After dipping overnight to only attack yesterday’s 2638.75 cash session close, its reaction recovered almost entirely back to the 2654.75 overnight high. Post-open pullback potential to 2643.50-2645.50 was barely touched, keeping alive the rally’s momentum and remaining likely to recover. That was also a test of the 2645.75 bias-up signal as support.
The recovery wasn’t immediate, consolidating past the opening 15 minutes of volatility. But the recovery was productive, extending to fresh highs at 2659.25. Resistance is 1 point lower, and probes above it only overlapped it, never gaining traction.
A reaction down to 2651.50 violated the pullback limit. No accumulative pattern formed, but 2658.25 resistance is already being retested. A detached bar just formed up to 2660.25, and RSIs are diverging negatively. Back under 2657.00 would reverse the trend back down. Otherwise, extending higher has room up to 2677.00.
The First Trade & Pre-open Tour Recording… The C-bet.
Proper context can start the day with a solid win and make all the difference.
DAILY SCHEDULE
First, watch the pre-open Tour recording HERE <<==
Then, meet in the chaRTroom here by 9:15 ET for updates and Q&A
Through the prior close…
Tuesday’s choppy overnight range had tried at first to extend the afternoon’s bounce to 2640.00, only to eventually try defending against extending Tuesday morning’s plunge to 2616.00. Wednesday’s flat open at 2632.00 did initially plunge to probe fresh lows at 2611.00, but that action was isolated to the opening 15 minutes of volatility. The balance of the session trended up, including a midday flat-to-higher range resisted by 2636.00. A late surge to 2644.00 was retraced 14 points and then recovered ahead of Facebook’s earnings.
Overnight action’s new info…
Favorable reaction to FB earnings extended Wednesday’s late recovery to attack 2655.00. A narrow consolidation there broke lower through midnight, testing 2640.00 into Europe’s opens. Stopping 1 point short of yesterday’s cash session close was enough to launch a bounce back into the earlier consolidation up to 2652.00.
If, then…
A basic poker betting strategy is called the “Continuation bet,” or c-bet. It refers to the lead bettor of the first round leading out on the second round, regardless of whether his hand improved. It’s often a bluff, but the c-bet shakes out weaker hands anyway. Similarly in markets, one session’s trending tends to extend into the following day, a c-bet regardless of it being momentum or actual accumulation. Overnight action has held up yesterday’s late surge, although we already know yesterday’s low doesn’t qualify as a completed bottom. Its initial follow-through was brief, and its eventual retracement was shallow, both of which are indications of excessive optimism. If maintained through Thursday’s open, then a morning rally would get every benefit of the doubt. But another round of betting precedes the open, and it is a reliable catalyst for volatility — the ECB policy statement and Mario Draghi press conference.
First Trade…
[Click here to view the Bias parameters] Exiting the open at 9:45 above 2650.50 would be likely to trigger the 2645.75 bias-up signal at 10:15. Exiting the open under 2640.75 would be unlikely to trigger bias-up.
Morning Bias
| THU morning signal (triggered at 10:15 ET) | SPX | ES |
| Bias-up: above | 2647.25 | 2645.75 |
| …would target | 2654.75 | 2653.25 |
| Bias-down: under | 2633.50 | 2632.25 |
| …would target | 2624.25 | 2624.00 |
| Signal status: BIAS-UP, BIAS-UP TARGET EXCEEDED | FAQ | |
| Flowcharts: Bias-UP // Bias-DN INTRO VIDEOS #1 and #2 |
||
1. At 10:15, trading above the bias-up signal or under the bias-down signal would put into play a test of its bias-up or bias-down target.
2. Not triggering either bias signal at 10:15 would be “no-bias,” and the bias signals should define the bias environment’s range.
— A test of the opposite bias signal would be targeted if one bias signal was tested before triggering no-bias.
3. Touching the bias signal within 3 minutes either way of 10:15 would invoke a grace period through 10:30 to trigger a late signal.
— “Late” signals don’t require testing the opposite bias signal, but it’s still likely.
4. Still testing the bias signal at 10:30 after invoking the grace period would trigger “noN-bias,” with no bias influence.
Market Wrap (recording & summary)
Is Wednesday’s low a durable bottom? The open’s probe under Tuesday’s 2616.00 lows by 5 points was absorbed in an unconventional way — by trending down throughout the entire opening 15 minutes of volatility, and no deeper. The balance of the session essentially trended up, 
including a midday flat-to-higher range up to 2635.00-2636.00. And that broke higher to 2644.00.
So, bottom?
Post-close high-profile earnings were likely to inhibit trending. Perhaps they did and that’s what caused the midday range. Pessimism and restrained optimism are constructive to bottoming. But Wednesday’s pattern didn’t end there. There was nothing pessimistic or restrained about the break to 2644.00. But that late optimism was neutralized by reacting down 14 points through the proxy window to the surge’s 2630.00 origin.
So, bottom?
Reversal signals don’t trigger on the same day the trend reaches its extreme. Fresh lows during the morning preclude Wednesday’s close from triggering a buy signal. Also, Wednesday’s low touched a 2-1/2 week old prior low before bouncing — not a “lower prior high” or retracement, but a prior low. It’s one of several I’ve identified during Big Picture reviews, noting that their support can be influential, but only temporary.
So, no bottom.
Wednesday’s cash session close was 2639.00 and Facebook’s earnings reaction encouraged extending to 2648.00. That may extend, but only temporarily, before returning to and through Wednesday’s lows.
Details and other markets coverage are discussed in the post-market Wrap recording here.
Monitor overnight Globex trading in the chaRTroom here.
Daily Spot…
A daily summary of high-profile members of several complexes… View a more detailed discussion of each chart at the end of today’s Market Wrap.
Eurodollar Jun Contract (EC, ETF: (FXE, UUP))
Monday’s gap down wouldn’t allow reversing back up soon, certainly not by Tuesday’s weak bounce. And that reacted down overnight to gap down Wednesday under Monday’s 1.2245 low. A bounce now has room up to the gap at Tuesday’s 1.2285 close before even threatening to reverse the trend up.
Gold Jun Contract (GC, ETF: (GLD))
Tuesday’s shallow obligatory bounce was retraced entirely overnight to gap down Wednesday morning. Ranging sideways between 1320.00-1324.00 hovered exclusively under prior lows that each had threatened to extend down previously. Bounce meanwhile have room up to 1330.50 without reversing the trend up.
Silver May Contract (SI, ETF: (SLV))
Gapping down under Monday’s lows Wednesday also fluctuated around the 16.50 pullback limit whose break under 16.40 would be unlikely to recover before probing fresh lows.
30-year Treasury Jun Contract (US, ETF: (TLT))
Although nothing was bullish about Monday or Tuesday’s patterns, a corrective bounce was possible. But fresh lows overnight produced another gap down Wednesday that once again makes any recovery attempt unlikely to extend before the weekend. A bounce has room up to 142-25 while still being likely to extend down to 141-04.
Crude Oil Jun Contract (CL, ETF: (USO, USL) (UWTI-long, DWTI-short))
Choppy sideways action Wednesday morning filled the gap back down to Monday’s 67.10 open. Being the lower-end of the past week’s range, Thursday is free either to probe under the range and trend down, or else bounce to probe the range’s upper-end and retest the rally’s 69.50 target.
Natural Gas Jun Contract (NG, ETF: (UNG, UNL))
Tuesday’s close above the 2.75 bounce limit extended higher to touch the range’s 2.79 upper-end. The pattern’s sell signal remains unchanged at 2.72 probed intraday. Thursday’s EIA report is being greeted from a position of strength, but a knee-jerk reaction down would still be credible.