Market Wrap

If two days of buying pressure can”t prevent a fresh low… then who”s going to defend against a sell-off? Of course, it hasn”t been two entire days of buying pressure. But Wednesday”s downleg during its first 15 minutes was then retraced through the balance of the session. Thursday was spent almost entirely in positive territory. But neither effort gained traction. So, another downleg at Friday”s open would be difficult to absorb..

Pattern points… (Setups and technicals)
Gapping up Thursday was too shallow to be reliable for extending higher. Although it was rejected into negative territory, that proved only temporary. But spending the entire session in positive territory isn”t necessarily bullish, not when Wednesday”s 2099.00-2099.75 highs restrained every rally attempt.

The optimism is ineffectual. That”s not necessarily bearish. The next session”s early sell signal would be that much more credible. Rallying first would be that much likelier to reverse back down entirely. But each initial is as likely as the other.

Thursday”s session didn”t invalidate Wednesday”s break lower, and made it more difficult to be invalidated. What could have been achieved by gapping up a little Thursday must now be done by gapping up a lot. And there is upward traction that can be relied upon Friday to attract a recovery after initially trending down.

What”s Next… (Outlook and opportunities)
The monthly Employment Situation report is released pre-open Friday. And being a Friday, the morning”s bias signal is likely to persist through the noon hour. Being so near the highs, there is potential for a new high close, which would affect the topping pattern. The same Friday Factors could exacerbate an initially negative reaction down.

If Wednesday”s drop is confirmed… then the recent topping pattern shouldn”t take very long or fall very deeply before ending. But it”s still a multi-session decline. Rejecting Wednesday”s drop could instead continue forming a much bigger top.

Pattern points… (Setups and technicals)
Wednesday”s break under last week”s lows must be rejected by gapping up sharply at Thursday”s open, or else the week-old topping pattern will have rolled over already.

Gapping up above Wednesday”s 2099.75 post-open high wouldn”t be credible for reversing momentum up. Gapping up only to test Tuesday”s late “higher prior lows” at 2103.00-2104.00 wouldn”t be very credible either. Gapping up to and through 2108.00 would be optimal for reversing momentum up sufficiently to retest last Wednesday”s 2117.75 high.

Not rejecting Wednesday”s break would be vulnerable to confirming it, closing under its 2085.25 low. Oversold RSIs there want to be retested, and don”t offer much support to produce a recovery. The decline”s next major target would be 2060.00-2065.00.

What”s Next… (Outlook and opportunities)
I want to schedule a couple of overview webinars, for new subscribers and seasoned subscribers. We”ll examine concepts like the Bias Parameters, RSI retests, and Timing Windows. And we”ll discuss tactics like Reaction entries and Setting stops. Please comment on this blog post at least two preferences for day and time that would be convenient for you to attend… Here are a couple of links to review meanwhile:
Entry parameter video, 3x3x4 Decision Matrix.

If Wednesday morning isn”t trying retest the highs… then a new downleg may be underway already.

Pattern points… (Setups and technicals)
Monday rejected the Thursday-Friday “ineffectual pessimism.” Two days spent exclusively in negative territory, testing prior lows, but not trending down, followed by a close above both. But that didn”t prevent Tuesday from probing under both.

Prior lows held, as they had Thursday-Friday. Described another way, prior lows were further chipped away, without yet breaking lower.

Still topping, or already topped?

Tuesday was more ineffectual pessimism. Gapping down, spending the entire session in negative territory, and probing under prior lows, but only intraday. The topping pattern that began last Tuesday, and which was confirmed last Wednesday, hasn”t yet launched a downleg. 

But it”s vulnerable.

Regardless, last week”s high is still likely to be retested. Opening only slightly lower Wednesday, flat and firming, or gapping up — an intraday rally would remain likely. But trending down through the open, triggering bias-down, would suggest the topping is complete.

What”s Next… (Outlook and opportunities)
Wednesday”s econ calendar is swamped, into and out of the noon hour. Even before then, Yellen speaks overnight. Reaction to ADP helps us to anticipate Friday”s reaction to payrolls. More Fed speakers into the noon hour are followed by the Beige Book release.

If a top is forming… then its next high should be done optimistically. Overly-optimistically. And its reaction should be sudden, steep and substantial..

Pattern points… (Setups and technicals)
Ready to roll? How about, rollover? Monday morning”s rally proved that Thu-Fri sellers had expended all available selling pressure. Monday afternoon”s rally through Thu-Fri highs proved their origin would be retested, back at last Wednesday”s high.

One question is by how much, although that”s likely to be 2121.25 or 2125.00. Higher is plausible, but not as likely. Another question is what happens then.

The topping pattern assumes the high will be retested overly-optimistically. That means gapping up Tuesday, and then extending relentlessly through last week”s 2117.75 high before correcting. Each higher and higher high would define the reversal trigger.

Regardless of how last week”s high is retested, the rally can still gain traction and extend. A new high close could be confirmed to launch a new upleg.

What”s Next… (Outlook and opportunities)
Hold-long was considered at the close, which was testing the 2110.25 buy signal”s 2115.50 minimum objective. Extending higher shouldn”t probe under 2112.00,. and preferably not even touch it.

If we”re certain of Monday gapping down… then a hold-short through the weekend makes sense, right? Not necessarily. The potential reward has to outweigh the risk, and not just match it. Monday”s potential to gap down aside, the degree wasn”t much greater than the gap up target.

Pattern points… (Setups and technicals)
Despite spending two consecutive days in negative territory, and despite selling gaining traction for two consecutive afternoon, the topping pattern hasn”t yet triggered.

A downleg would be more credible if begun AFTER first retesting the overbought RSIs at Wednesday”s 2117.75 high. At least, a downleg could be more substantial, and not limited to either 2095.50 or 2088.00.

Starting the new week by rallying back to Wednesday”s high is likely to begin by gapping up. Probing lower first would be vulnerable to melting down, but unlikely.

What”s Next… (Outlook and opportunities)
We”ll review the broader market setups and any stock chart analysis requests at this weekend”s Saturday Review. Click here anytime within 30 minutes of its 9:30am ET start.