Saturday Review

Yesterday, the recording”s link was placed in the comments section of the Activity Feed. Here it is again, followed by the transcript…

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10/4/2014… Good morning. It”s Saturday. Welcome to the Saturday strategy session. I have a little bit of an inset here. This, is this, and it”s right here. Right smack dab in the middle of things. Not that being smack dab in the middle of things can”t still trend, still move, still offer a lot of opportunity. But there”s the rally up, there”s the reversal down, or at this point, we think just a retracement. Just a corrective dip. Maybe corrections solely for the purpose of returning back to the high, giving that a test. There”s certainly unfinished business above. Unfinished business above in terms of the gap back to the high. There is an open on September 19th gapping up above all prior price action, and those just want to be retested. A lot can happen in the interim, so it”s not a timing mechanism, but it is unfinished business above. Just prior to that, there had been a reaction to fresh highs on the back of the Scotland Independence vote or the absence thereof. That”s a new blowback trend extreme, and that wants to be retested too. So, we give all of this context of it being corrective or at least being temporary. Maybe it”s the first leg down, and once we retrace entirely the next leg down until lower lows come. There was an opportunity for a trend change. There was an actual trend change signal. That was not too long ago, closing above prior lows. A whole panoply of lower lows in the low session, 68 within 68.50 was the lowest. That was at pre-open or overnight Sunday night low all the way up to 78, 1978 being the high of that session. That”s not as relevant as the close, and the close itself, despite closing under that range decisively, to trigger a trend change that is from this prior high, to this prior high, to actually close under their interim low, signaling a trend change.

Confirmation needed one thing. You had one job. That one job was not to retrace it, just maintain that break. The next day, of course it was late, but the next day late retracement, It was a Friday, so it”s undermined to some degree. That certainly accounts for the quick reaction down, and despite recovering it entirely, resolving down anything. Behaving, in other words, like a trend change, that first day trend change confirmation. Confirmation, unlike a breakout that is required to produce a second consecutive higher or lower close beyond the breakup point, the confirmation of a trend change signal just has one job. Don”t give it back. That trend change confirmation session gave it back, but that didn”t prevent trying to make up for it. Trying to make up for it in compensating for the delay and behaving as if there had been a trend change. So, it really doesn”t matter to our purpose of intraday trading, but if you”re positioning short there might have been an opportunity missed. In any case, we never got a buy signal. Still haven”t gotten a buy signal. All that we”ve done in the entire recovery here, including yesterday”s session long rally, all we”ve done is a trace back to higher prior lows.

Now, we will give buyers this much more benefit of the doubt considering we”re in the context of unfinished business above, a late, if at all, trend change signal that has been productive. If we”re going to give buyers any benefit of the doubt on top of all of that, that they may be taking control, or they may be absorbing sellers and preventing them from expending any more control, it”s that yesterday”s close, and being a Friday, the week”s close, recovered back above prior lows. It”s not like the week was spent lurking either way around those prior lows. There was a pretty big scoop out of lower lows, and despite having all of that ground, sellers didn”t exploit it or couldn”t through the close of the week, buyers could. So, this current week’s close back above the prior week”s lows doesn”t mean this never happened, doesn”t mean that didn”t test the integrity of support and perhaps chip away at it. It means that there”s a chance for that ultimate test to be left to another day. We know that there”s an ultimate test coming because we have oversold our side at the low. Again, not a timing tool, nothing about that speaks to timing. Nothing about that speaks to timing, that it has to be retraced on any specific timetable, but it does have to be retraced at some point, typically. Very rare is the exception.

So meanwhile, what do we have? We have from that, and it looks like a head and shoulders. It”s not a head and shoulders for predictive purposes anymore than it is at the low. Let”s go ahead and elaborate on that. It incorporates two sessions. It”s not a big problem with it, but just to point out it can”t be considered that predictive, there”s a head and shoulders at the end of Wednesday”s session using that pattern. You can try to get a head and shoulders out of that. It”s pretty sloppy, but in any case, we already had other indications telling us sellers weren”t gaining traction on this day spent largely, that”s Thursday, in negative territory. We don”t need no stinking head and shoulders. Anyway, that is support, those lower prior highs, that gap back to Thursdays close. Until we get into that range the oversold RSIs at Thursday”s low, that is both one and three minute RSIs being oversold at the low, requiring it”s retest. Until we get back into Thursday”s range, that won”t be an attraction. Now that we”ve gone back into the trading range, literally channel multiple consecutive sessions overlapping the same area. Now that we”ve gotten back into that range, without rejecting it through the close. The upper end of that range becomes an attraction and actually the 51.8% retracement of it does, which is about 1975. Get through there, and we”re heading back to the highs. Otherwise, just like last Friday”s rally, which actually was a little different. Last Friday”s rally came basically as an afterthought. Remember the session itself had fought off, successfully except for a pre-open dip, the requirement to eventually probe under last Thursday”s low, and all of that selling pressure into the weekend just got squeezed. If Monday or Sunday night, as last week, were to reject yesterday”s rally, we”ll be back into that range sooner rather than later. We”ll be leaving that alone, but an attraction from above, leaving that alone to neutralize the attraction below.

If you notice, now having spent our intro talking about a bullish scenario that continues higher, a bullish scenario that neutralizes attractions below, and then it continues higher, I don”t have a high regard for a bearish scenario. There is a bearish scenario without getting any higher highs out of the way, without extending any higher. There is a bearish scenario. It doesn”t require extending down immediately Sunday night or Monday. In fact, the most bearish scenario doesn”t extend down immediately. The second bullish scenario I listed actually extends down immediately from this position of strength where there”s so much extra room now to absorb selling pressure that by the time it”s neutralizing the attraction below it”s already been fully expended. The most bearish scenario takes it”s time. So, the most bearish scenario will possibly be the most easily spotted, and it”s therefore the most easily dismissed Monday morning. Because if this pattern from Friday afternoon is at all adhesive, if Monday morning opens, and there is low or no volatility and we”re just ranging in it or around instead of exploiting the upside momentum of the morning, instead of quickly trapping more shorts, if instead the market is treading water, spinning its wheels, hovering, and I”m out of metaphors at that point, then probably it”s running out of buying pressure to defend that rally and, more so, using up buying pressure that might otherwise defend against the decline. I don”t see that as being the most bearish scenario by being an immediate drop. It should be gradual. It should try to lure in as much bottom fishing as possible, pullbacks waiting for a resumption of Thursday afternoon”s recovery, of Friday”s rally, buying cheaper and cheaper, biting it off at support after support. So, the less volatility Monday morning, the slower the retracement throughout Monday and probably Tuesday, the more bearish the scenario as we approach the lows and more and more buying pressure is gone, more and more eyes are opened, that this isn”t just a retest. The faster that we can head back to lows, the less buying pressure expended trying to defend against the decline, the more buying pressure available at the lows. Otherwise, just extending higher gets every benefit of the doubt. That is the likeliest scenario. Until they open, that”s the likeliest scenario right now. If the open doesn”t immediately extend higher, we”ll cross that off the list, but that”s the likeliest scenario, to immediately extend higher through the open, if not already gapping higher Sunday night/Monday. One of those reasons has to do with Friday”s range, similar to Thursday. Recall that Thursday afternoon had an opportunity here with its recovery of the morning”s drop. Recall that Thursday afternoons, and I”m not going to go into the interim timing with this here. I want to finish this up on a broader market discussion in the next couple minutes, literally.

So, go back to these days if you need to. You can scroll back now in the activity feed in the Market Buy site, on Market Buy blog, or my post to the activity feed. If you haven”t saved the e-mails that contain the links to these days to get those examples, but I do want to point out the similarities to Thursday”s noon hour range, Thursday”s bias environment exit, and then the final hour”s entry. The bias environment exit was above the noon hour”s range, but here”s what happened at the final hour”s entry. It was no higher than the bias environment range. This is the bias environment. No higher than the bias environment range. Not only that, it was no higher despite probing the fresh high. That”s an important point to note. It told us not only did buyers not gain traction for their efforts, but worse yet, they had tried and failed. You”ve heard it”s better to have tried and failed than to have never tried at all? A bear came up with that. Anyway, there”s the reaction down, and of course it trended down through the night. The seller”s didn”t gain traction on the deal, buyer”s just didn”t get it. Fast-forward to Friday, similarly with one difference, here”s the noon hour”s range, there”s the high, here”s the bias environment”s exit, and here”s the final hour”s entry. Now, what”s different of course, is that the bias environment exit as opposed to Thursday, Thursday”s bias environment was above the noon hour”s range. Yesterday, it was within, but everything else, the bias environment”s higher high, the final hour”s entry back within the range of both, these are similar and they prevented buyers from gaining traction for their effort.

We just looked at Thursday. We just looked at Thursday”s setup where buyer”s failed to get traction for their effort, correct? So, having looked at buyers failing to gain traction for their effort, the afternoon”s buyer”s, how do we account for this gap up? That”s the whole point. Those buyers failed to gain traction for their effort, and on an up day or after a big recovery like that, how do we say buyers didn”t gain traction? Buyers were fully satisfied. These buyers were rewarded for their effort. The following night”s setup down here, the retracement was too much of a retracement so that it had to be about buyers. They extended it. Look at all of those buy signals, and they got somewhere, but they didn”t gain traction for their effort because they kept hitting their targets, and/or they didn”t maintain their gains through the relevant windows.

So, that begun at 4:00, and let”s make it quick. Here they didn”t gain traction for their efforts; that”s Thursday afternoon. There”s a dip, but there”s a rally overnight because if buyer”s don”t gain traction for their efforts for this leg, then the only way to extend higher is if new buyer”s come in, new sponsorship. And new sponsorship makes itself known. It has no choice by having a different character. That”s a gap, a different slope, sometimes 180 degree turn. If new sponsorship arrives, traditionally we think of that in terms of reversing the trend, but it can also be new sponsorship that”s more enthusiastic than the previous crowd. So, that”s the same potential for extending higher on Monday. Buyers gained no traction for their effort, and they sure put out a lot of effort gapping up, extending higher, a session long rally that, in every single timing window but one, probed fresh session highs. There”s the final hour, just got it in. Bias environment, barely, but did it. Noon hour”s high. Only the morning”s bias environment didn”t produce a fresh session high. That was the one exception, that there should be one exception. So, if the rally”s going to extend any higher, these buyers are done. It has to be by new sponsorship. So, the bigger picture says there”s still potential above, and here”s what gets us up here, et cetera. We already covered that. This is how we get there, by gapping up. So, those are the filters that we will be looking at the open through.

Click here to launch the Flash recording of this weekend”s Saturday Strategy Session. The transcript is below…

Saturday Strategy Session
9:30am ET 09/28/14

Let”s talk about last week”s market, which was all over the place. Happy New Year. Happy Rosh Hashanah. Although that depends on your perspective I suppose.This is Rosh Hashanah. Hashanah came in, and the word is out that Wednesday was a big setup. I”ve got to say that Wednesday”s setup was pretty productive. Certainly, we had had our share of it and anticipation of it, in fact. Just to point out last week”s session was, in its entirety, not bearish unless it could get something done and maintain it. What does that mean? It means that buyers weren”t rejected. It means that probe of highs didn”t fail. It means that the burden of proof last week was on sellers, not on buyers to maintain, but on sellers to reverse, and sellers did reverse, but they didn”t maintain it.

Here”s what happened. Starting Monday, gapping down from Friday”s big reversal, extending down Tuesday, and then Wednesday”s rally. We”re going to go into a little greater detail on that in a moment, but I just want to finish up with the point about sellers bring it, but not maintaining it. This is when sellers brought it on Thursday, gapping down, despite Wednesday having recovered from probing the prior session”s low, to closing to prior session”s high on an outside day.

An outside day in the context of a multisession decline. I”ve seen all kinds of interpretations of that being predictive of this, predictive of that, depending on volume doing this or volume doing that. I”ve never seen any correlation that was reliable other than an outside day does point out that the market is at a significant point.

This is a significant point. This range. The outside day itself. The day that it”s being encompassed. Important stuff happens there. So, it”s interesting that first of all Thursday”s open gap down to reject what? To reject that portion of Wednesday”s rally that recovered the prior day”s ranks. Wednesday”s rally was significant for having closed back above the prior day”s range. If not for that, Wednesday”s rally would have been noise, and the decline would have resumed or had the bounce tried to expend Thursday, we would have expected it to fail. The decline did resume anyway, but it resumed from a close above the prior session”s high. So, there”s a greater burden of proof on sellers at that point.

All that sellers were able to do at Thursday”s open was to produce a gap down under Tuesdays high, under the level that Wednesday”s close had recovered, and that”s not enough. That”s a proxy. Thursday”s open is a proxy. If Thursday”s open wants to invalidate anything that Wednesday”s rally accomplished, it”s going to have to do more than just retrace what Wednesday”s rally had accomplished, and it did it. It needed to gap down under the prior afternoon”s low — not that that made much different for the decline”s productivity Thursday, but for the chart, for the context of revealing whether that was strong handed or weak handed sellers, gapping down under the prior afternoon”s low as opposed to just under that segment that the prior afternoon”s rally had recovered, made a lot of difference.

Now, the first 15 minutes of volativity did extend down Thursday, did extend down to that level that really needed to be broken through the open, at least at the latest the opening 15 minutes, but it was still just a little too late, a little too little, too late. So, at the very least, there is still a door open at that point, no matter what the productivity of seller”s on Thursday, there”s still a door open that they are weak-handed.

They did go on to produce a close under the prior low two weeks earlier, the Monday 15th low, the low that intervenes between September”s two highs, the Labor Day high, last Friday”s high. That they did run low Monday the 15th is pretty important. It was so important that it produced a new high. There shouldn”t be any foolish reason to revisit it, let alone break under it through the close, and Thursday”s close broke under it. That”s a trend change signal.

A trend change, like a breakout, is certainly relevant. It”s very predictive and potentially very productive, but it requires confirmation. Unlike a breakout, which requires reconfirmation of a second consecutive close in the direction of the breakout, a trend change is counter trend. So, trend change is just trying to prove that the prior trend”s sponsorship is no longer defending the trend. So, the trend change signal doesn”t have to produce a second consecutive close in the direction of the trend change. The trend change signals confirmation. It simply needs to maintain the break, the break under the level that was broken by the trend change signal.

Really, it shouldn”t have been too difficult, not if it”s a valid trend change. Thursday”s trend change closed testing 1960. The afternoon was not accumulative. That created requirements to test, to probe, under Thursday”s lows at some point, and having gone out and testing 1960, the priorMonday”s lows that were broken were significantly higher. At the lowest, the closest was 1968.50, which was the Globex low Sunday night for that session. There was the intraday lows of 1969.75, there was the cash session close, basically 1975.50, and then there was the intraday high of 1979. A lot of target points, a lot of important decision points in that session that failed to hold, that weren”t defended.

They were all recovered on Friday. The way they recovered it itself is suspicious. We were already suspicious of Thursday”s trend change signal. It came in a low volume environment where there was a lot of participation missing as the Jewish New Year was being celebrated and observed and services. The origin of the drop was from an outside day that had recovered the prior session”s highs in a multisession decline. The gap down wasn”t low enough to reject the outside day”s sponsorship.

So, we were suspicious at the point, but still needed — because of Thursday afternoon”s non-accumulative ranging — still needed some fresh low to be rejected. In fact, that”s the path that I thought the market was following, was the rejection of a fresh low, whether it was overnight, post-open, just early enough so that the rejection could trigger a short squeeze. We didn”t get the fresh low.

[We actually did get a fresh low. I don”t consider it that relevant, maybe the market did. I”m not going to start making exceptions for literally, momentary, fresh lows pre-open. I do have to note that the market did do that, but that doesn”t qualify for what I was expecting for this pattern as much ranging as it was, still needed and needs, a little more pessimism to be rejected than that. By the way, if that were valid, that pre open probe of a fresh low, momentary, quickly rejected. If that was sufficient, then the bounce in the morning should have been exited in positive territory well about Thursday afternoon”s highs, and it wasn”t.

That”s why Friday”s rally surge was so suspicious, not suspicious in that we didn”t have a signal intended to capture it. It exceeded the target, the objective, and helped pull back when it”s easily on the way to its ultimate highs, but that doesn”t mean that it”s doable. That doesn”t mean that it”s any less suspicious than was Thursday”s trend change signal because notice when that break had to happen. It had to happen… when? During a low volume environment.

Sound familiar? Thursday”s low volume environment. These are directional tools, low volume. These low volume environments are just vulnerabilities, and the vulnerability was up, and Friday afternoon took full advantage of that, the least relevant timing window of the week. Less so on this Friday because there”s still the more observant. We”re still somewhat worshiping for New Year. Look at the left line, even more vulnerable.

So, what do we have when we”re left with a trend change signal on Thursday, that was itself suspicious because of the volume environment that was invalidated by Friday”s close, recovering the entirety of the prior Monday”s panoply of relevant levels? Not 1979, but that”s the least of it. So, just because the rejection of the trend change signal, or the lack of its confirmation was low volume and the signal itself was low volume, no harm, no foul, I”m still suspicious of being able to just start trending down. I predict there being another drop on Monday.

That doesn”t prevent actually getting the tests of Thursday”s lows out of the way, it is an important place point. Notice the congestion, we talk about congestion a lot. Brief periods of time that are very choppy in relatively narrow ranges, congestion. That creates an attraction. It creates mass like a planetary object has its gravitation pull, try getting out of its orbit and get luck with that. Very often, we”re traced back to it. We have to get out of it more substantially to be sure not to have to return back into it.

So, there”s a lot of mass at Thursday afternoon”s lows, and there”s still a good chance of retesting it, just to get that retest out of the way. I”d like to see a fresh low out of it, and especially just a percentage or trades went into it, and then retrace back above it. That would help to form more of a durable bottom, not that the bottom is going to do anything more than take care of last Friday”s unfinished business above.

There is, not necessarily the gap back to last Friday”s close. Last Friday”s cash session close equivalent, or let”s say a future’s close 2003, cash session close equivalent to 2025. The cash at the open itself gapped above all prior intraday ranging, it needs to be retested from below, and it could have been retested earlier. I don”t have a trail aid. It could have been rested already and hasn”t been. Typically, those are retested. That”s basically 2011, 2010.75. Then, even prior to that, the overnight high that was being tested in reaction to the Scotland Referendum at 2014.50, “new Globex tend extreme.” So, these are the things that are inhibiting a downleg from beginning, running along, getting traction, and extending. Therefore, that context undermines the trend change signal if it should appear, which it did, and it was undermined.

So, having to trace back into the trend change range of signal to close back at or above the majority of that range…I”m not ready to look for a runaway rally. This may look like a flag, Friday afternoon. That”s just not the place where flags appear. It may look like a flag, which is a continuation pattern that resolves up, but this one is still vulnerable to resolving down. Sunday night, if there is an attempt to extend higher since Friday”s 1975.29 high, accompanied by both 1-minute and a 3-minute RSIs that were overbought simultaneously. These could be retested.

That can be neutralized overnight, and if Sunday night”s open would somehow get back up there to do that gap up there, trend up there, and I”ve got 2 levels, 1980.50, 1982 — these were at a block, by the way, preferably in this area. I don”t know that I”d step in front of that. On a Sunday night, that can be very dangerous, maybe on the way to exceeding it even more so, but that”s the first spot of failure potential.

I certainly want to be short if an opening bounce in 1980.50, 1982, into that area, were reversing back into negative territory. I would be expecting that to produce, at the very least, retest of lower prior highs back in Thursday afternoon”s range, if not at 61.8% retracement and, more likely, a fresh low. The burden of proof remains on sellers, even in that regard. The burden of proof would be to close under Thursday”s lows. Otherwise, an intraday probe under Thursday lows would be more vulnerable to bottoming, to recovering, resuming the rally, taking care of some gaps above — neither one of which has to be tested, but if one is tested, the fill that is, the next one would be filled, too, probably.

Once we get back within proximity of last Friday”s range, filling the gap at the open, testing its pre-open high, these become formalities. That”s if, by the way, whether it”s starting with a bounce initially that fails, or if Sunday night/Monday already drops to retest Thursday”s lows. A bounce may not fail. It may simply go on its way to testing Friday”s range and getting that out of the way. While this pattern Thursday afternoon was not accumulative, and the break higher was wrong-timed for the sponsorship being strong handed, we don”t get to acquire a complete retracement and retest of Thursday”s low. It”s just very likely in this pattern that any rally in the interim is suspicious. That doesn”t prevent a rally in the interim. It will be suspicious in that we”ve already expected to be a new rally leg to new highs, but it will be capable of retesting last Friday”s range.

Finally, if there is in fact a retest of Thursday”s range, Thursday”s lows, fresh lows, and not a recovery, then the drop extends. I”m still not anticipating that that become a bigger and better market. I”m not anticipating it at this point, not with the way that it began, but the next lower objective, in any case, would be the lower 1940 handle.

Okay, let’s do the new car raffle. Everyone have their entry numbers?

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