Market Wrap

Discovery of a terrorist plot in Germany at a soccer game triggered the bias-down environment’s extra plunge to 2046.50. That was back down through the 2050.50 bias-down target, which had been met already. And it reversed a bounce that was testing the 2056.00 bias-down signal up to 2058.00.

The drop extended down to 2041.50. Then another headline announced discovery of another device at a train station. The needle barely moved, except for firming a little. Clearly the market was fully discounting the discoveries.

Extending down would require another catalyst, a horrible event. Absent that, there was no catalyst to trigger a recovery. But the final hour did firm back up to the afternoons’ 2050.50 bias-down target. Assuming no further terror discoveries, an overnight rally wouldn’t be surprising.

Perhaps 2068.00 will be tested in anticipation of tomorrow afternoon’s FOMC Minutes. Perhaps that will trigger the next correction down.

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Too much of a good thing? Monday afternoon’s rally gained traction by exiting the bias environment above the noon hour’s high and entering the final hour even higher. That represented 10 points of the rally. The final hour trended another 10 points to fulfill the intraday rally’s next higher objective at 2049.25.

Was that already enough reward for the afternoon traction? Trending higher overnight wouldn’t make it any more stable. The most bullish scenario would inject a little pessimism for a pullback to 2035.00. Then trying to extend higher Tuesday morning would be credible for trending.

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The two-week old pullback is really less than that. The first two sessions two weeks ago had rallied, and the next 2-3 sessions had retraced that. The newly-finished week didn’t trend down throughout, but it wasn’t much for counter-trending.

Only one prior low of the rally has been broken, which keeps the pullback corrective. Break another prior low, and the trend will have reversed down. How will that affect the potential to new highs? A lot. The upside was never a target, but the objective of a new upleg. A new downleg can take its place.

Having steepened the slope of the decline from the two-week old highs, a lot of selling pressure has now been expended without reversing the trend down. At least, not yet. There is room for a little more follow-through at or before Monday’s open. But not already rallying into the afternoon would undermine the recovery attempt.

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The decline steepened during the afternoon. Opportunities to avoid extending the decline were ignored. Final action in the close never became capitulative, which isn’t bullish from a contrarian perspective.

Having finally broken free from testing the noon hour’s 2049.00 low, a 9-10 point probe was likely. That was met, but only barely, and only after the close. It’s more vulnerable to extending down than to reversing, next targeting 2034.50 and 2032.00. And they’re in-play without delay so long as bounces hold 2050.00.

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The afternoon’s slide consolidated down to the 2070.00 area for Wednesday’s final hour. That is, until the final minutes. Then it finally resumed the decline into and out of the close down to 2068.00.

Its timing wasn’t optimal to signal hold-short, but lower lows remain likely, down to 2062.75 if not also through it. The break’s timing also wasn’t early enough for an optimal “session-long rally” setup — this would reject the last downleg by gapping up Thursday above Wednesday afternoon’s ~2078.00 high. But both setups are credible.

The most bullish scenario is neither of the above. Extending down overnight to probe Monday’s 2062.00 low early, and then reject it through the bias environment, would still be the most impressive bottom. Not holding the bottom would be bearish.

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This evening, monitor overnight Globex trading in the chaRTroom at:
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