Market Wrap

Thursday’s “outside day” encompassed all of Wednesday’s range, and all but Tuesday’s first-minute gap up. That gap up had surged through the open. But Thursday’s gap up quickly reversed back into the range, and through it, for a 14-point drop.

So, add that to the list? Thursday’s 14-point post-open drop puts the rest of the list to shame –Tuesday’s 9-point drop from its morning high and 7-point drop through its close, and Wednesday’s 6-point drop after FOMC Minutes. That’s a lot of big, isolated drops within a 9-10 point range, during a brief 3-day window.

Something all of the drops have in common is their retracements. Thursday’s drop was retraced to within 2 points of its post-open origin. That’s larger than any of the prior drops. Their shallower recoveries each soon failed, so Thursday’s incomplete recovery suggests that optimism is healthily restrained. And that’s potentially bullish from a contrarian perspective.

Thursday’s late dip wasn’t productive early enough to be predictive of further selling pressure. It may have only stretched the rubber band to snap back up Friday. Regardless, the burden of proof is on sellers either to gap down substantially Friday or trigger bias-down to avoid probing higher highs.

Details and other markets coverage are discussed in the post-market Wrap recording here.

Monitor overnight Globex trading in the chaRTroom here.

Sliding from 2363.75 at Europe’s opens down to 2355.25 before the open was never probed intraday Wednesday. Not in either direction. Each was attacked to within a couple of ticks — the pre-open low while holding a test of the morning’s 2356.75 bias-down signal, and the overnight high while trying to fulfill the offsetting test of 2366.00.

2366.00 seemed in the process of being met when the afternoon’s FOMC Minutes triggered a 6-point plunge from 2362.50. Ultimately, the session ended essentially unchanged from Tuesday’s 2360.00/2362.50 close. New sponsorship doesn’t seem very attracted to Tuesday’s opening surge, other than to maintain it.

The template is wide open after fulfilling the outstanding 2366.00 objective. Nothing prevents extending higher through it. Regardless of whether it were tested first, overnight action could already reverse down to greet Thursday’s open under this week’s lows. Gapping down deeply enough could even form an Island out of this week’s ranging.

Details and other markets coverage are discussed in the post-market Wrap recording here.

Monitor overnight Globex trading in the chaRTroom here.

Tuesday’s open was greeted by largely bullish holiday price action that launched a gap up 2 points above last Wednesday’s high to 2353.00. Assisting the trend was a bullish WedEX that had been influential Friday afternoon. Extending sharply higher renewed the 2355.00 bias-up signal through its 2361.00 bias-up target, putting into play 2365.00-2366.00. Which was attacked to within 1 tick.

RSIs were no longer simultaneously overbought when the morning’s peak was reversed 9 points down to 2355.75. Firming through the afternoon bias environment then rallied through the close to pierce the morning’s high by 1 tick. The 2365.00-2366.00 target was barely touched, but it was touched.

And apparently, the target was also neutralized. RSIs had diverged negatively at the late high, facilitating a last-minute dip down to 2363.50 at the cash session close. Futures extended lower to attack 2358.00. Not at all shallow, but still too little and too late to be predictive of a resolution. Nevertheless, it is certainly reflective of the atmosphere up here. And a reminder that there is no “unfinished business above” to inhibit reversing down.

Details and other markets coverage are discussed in the post-market Wrap recording here.

Monitor overnight Globex trading in the chaRTroom here.

Trending up from Friday’s morning bias environment low at 2337.75 extended higher through each remaining timing window. Fresh session highs were probed all the way through the close. The morning’s bias objective to test 2348.25 was pierced by 2 ticks. No “unfinished business above” was left outstanding.

It was a new trend high close, on a Friday. But not until after coming within 3 minutes of the cash session close. Until then, Wednesday’s prior high close was being overlapped, if that. And Friday’s high was still under Wednesday’s high. So, no more new trend high close is required.

Nevertheless, new highs are likely, since trend extremes just don’t develop into expirations and/or three-day weekends. NDX performance compares well among major indexes, suggesting that strong hands have a healthy speculative interest. Fresh highs would next target 2366.00.

Friday afternoon’s price action aligned with the actively bullish WedEX signal. So, Monday morning’s price action is expected to behave bullishly, too. Of course, U.S. markets are closed Monday for the President’s Day holiday, and the signal’s influence is assured where expiration isn’t relevant. But markets tend to allow each other to fulfill their objectives.

Details and other markets coverage are discussed in the post-market Wrap recording here.

REMINDER: There is no Saturday Review due to the holiday weekend. The chaRTroom will re-open Sunday night for Globex, which trades through 1:00 pm ET Monday. Enjoy the weekend!

Did President Trump just warn us of the rally’s top?

Here’s his tweet from this morning:

Stock market hits new high with longest winning streak in decades. Great level of confidence and optimism – even before tax plan rollout!

I bolded the last fragment for emphasis, “even before tax plan rollout“. The six-day old breakout of this rally was triggered in part by remarks promoting a “tremendous” tax plan. Wednesday morning’s opening dip was rescued by an off-the-cuff remark reminding us of the “massive” tax plan in the works.

Clearly, a tax plan can be wholly imagined and have quite an effect on prices. The rally is sparked by market participants believing a tax plan is coming, and that it will be tremendous and/or massive, having a future positive impact for companies and for their stock prices.As the President said tweeted this morning, even before tax plan rollout!

So, this hasn’t actually been the tax cut rally. It is the anticipation for tax cuts rally.

Several other potentially bullish inputs are also helping to push prices higher. But at some point, potential future developments become priced into stocks. There’s always a discount for risk, and for the time value of money. Or, there should be a discount. Occasionally even that discount is overtaken when a move becomes so high-profile that it attracts many non-professionals.

Non-professionals don’t buy the earliest stage of a move because they’re not yet convinced. Inversely, the more convincing a move becomes, the more non-professional buyers it attracts. Therefore, no price is too high to non-professionals that only now are buying into what is a very convincing move — the more convincing, the more that it’s worth.

It’s a wonder how rallies ever stop. Oh, right. Meanwhile, professionals are focused on those disappearing discounts. They stop buying. Then they start selling.

Now, my own work on this rally continues to suggest it has some more room to advance. The broad base that launched the rally rarely produces only one-legged breakouts. And this first upleg’s degree and duration is usually followed by a second.

But between those first and second uplegs is a correction. A correction can begin in this pattern at almost any time, albeit much more credibly after this weekend than before it. Immediately preceding the first upleg’s corrective drop tends to be wide agreement of the story behind the rally.

Not necessarily the entire story. Non-professionals don’t understand the impact of this week’s Yellen testimony, and expiration, and seasonal bullishness ahead of the three-day holiday. So they also don’t understand that these influences are all within hours of disappearing. And non-professionals also didn’t notice the past 2-3 sessions have ended with short-squeezes. Contrarians did.

Regardless of whether this week’s bullish WedEX signal is fulfilled going into the weekend and coming out of it, another upleg remains likely. But this first upleg is exhibiting characteristics that suggests it reflects a tremendous, massive tax plan, which isn’t even close to being rolled out.

Details and other markets coverage are discussed in the post-market Wrap recording here.

Monitor overnight Globex trading in the chaRTroom here.