Market Wrap

If a new high close on Friday can”t be a top… then Friday shouldn”t produce a new high close. Otherwise, the topping pattern we”ve been tracking isn”t valid.

Pattern points… (Setups and technicals)
The topping pattern that was warned Tuesday, and which was confirmed Wednesday, began tipping its hand Thursday. But it was mixed signals that still probably delay a downleg. 

The entire session was spent ranging in negative territory, it probed under prior lows, and it closed negative. That”s “ineffectual pessimism,” which often produces at least a temporary rally.

Also Thursday, the afternoon”s bias environment was exited under the noon hours low and the final hour was entered lower. Sellers gained traction, and should be rewarded by spending the morning under Thursday”s lows.

Each is problematic to the other. A fresh low here could extend down much more substantially — so much for overbought RSIs being retested at Wednesday”s high. Powering higher instead would prevent rewarding Thursday”s sellers.

What”s Next… (Outlook and opportunities)
Thursday”s sellers can be invalidated by maintaining a gap up above Thursday”s highs. Don”t feel sorry for them. They”ll be well rewarded after retesting Wednesday”s high. Otherwise, last week”s “lower prior highs” will be tested next.

If the rally isn”t topping right now… then it”s preparing to get extend at an exponential pace. That wouldn”t change its ultimate resolution, but it would be a painful short.

Pattern points… (Setups and technicals)
You know that string of consecutive gaps down, all of which were absorbed intraday? They eventually got shallower and briefer, as their recoveries became more and more anticipated. Pavlov”s dogs used to do the same thing.

So, as the opening dips are bought up more eagerly, and that”s translated more regularly into a new high, eventually, their higher highs become unsustainable.

That happened Tuesday, to a small degree. Its afternoon new high failed to retrace above the morning”s new high. It happened again Wednesday, as its new high almost closed back under the morning”s low. In fact, Tuesday”s sequence required Wednesday to reject its 2117.75 new high. We were anticipating it. The only question was how, and by how much?

Okay, that”s two questions.

How: The bias environment was exited under the noon hour”s 2114.75 high, and the final hour was entered under the noon hour”s 2112.75 low.

How much: The morning”s 2108.75 low in negative territory was probed down to 2107.25.

New highs, and sellers gained traction. They also avoided closing under the morning”s high, which would have formed a very bearish “Pivot Reversal” setup. We also anticipated that wouldn”t happen, since this wasn”t the appropriate stage for “very” bearish. Sort of like the gaps down, also inappropriate to extend down.

But not for long. Trending down sharply Thursday morning after Tuesday and Wednesday”s sequence would be substantial, but not durable. That template is available, but more likely is another optimistic session that doesn”t gain traction for its effort..

What”s Next… (Outlook and opportunities)
Overbought RSIs at Wednesday”s 2117.75 high require its retest. Gapping up around 2115.00 and probing a fresh high would be optimal timing — both intraday and day of week — to begin trending back down into the weekend. Closing above Wednesday”s high would instead suggest the rally is instead extending to 2130-2140.

If another session were to mimic Tuesday”s… then a new downleg could be obvious within hours of that. Probing new highs without gaining traction isn”t the problem — except for sessions that develop almost exclusively above all prior sessions” highs.

Pattern points… (Setups and technicals)
Although Tuesday morning”s bias-up wasn”t triggered, its 2114.00 target was pierced by 1 tick. So was its potential for being probed up to 2115.25 at the afternoon”s peak.

Buyers gained no traction for the effort, since the bias environment was exited within noon hour”s range. That”s not necessarily bearish — the final hour”s entry was above both and the 3:10-3:20 timing window trended through the morning”s prior high, so sellers were prevented from gaining traction. 

The rally stumbled at  the close, too. Despite probing a fresh session high, the morning”s high was still being overlapped. So, not already trending down at Wednesday”s open could spend the morning probing fresh highs.

Overbought RSIs at the 2115.75 high will require a retest, despite the late 3-1/2 point reaction down. Neutralizing the retest overnight is the only credible path down Wednesday morning. Otherwise, trading down first, or not already reacting down from 2115.75, could marginalize sellers into the afternoon.

What”s Next… (Outlook and opportunities) Very little of Tuesday”s session probed back into a prior session”s range. The morning”s bias timing window was spent under prior highs, but a break higher rejected it during the first hour. The noon hour”s momentary dip was recovered to fresh highs. And, yet, the rally gained no traction for the efforts. This observation tends to appear before substantial reversals, even if the reversal proves only temporary.

If not for the new Grexit drama… then Monday”s session could have ended flat like Monday did. But the range would have been much wider and less subdued. Not that Monday was terribly subdued — it was volatile enough to expect a substantial reaction to news..

Pattern points… (Setups and technicals)
Monday”s session, in retrospect, was defined by its fifth consecutive opening gap down, which didn”t extend. It wasn”t just the drop, and its lack of follow-through. It was the multiple intraday drops that didn”t extend.

Not extending down wasn”t for lack of trying. The open”s drop ultimately triggered the bias-down. The afternoon”s drop took RSIs oversold. There were interim drops, but they were book-ended by strong-handed sellers. And then they were overwhelmed.

Last week”s upside target at 2101.50 continues to be influential. It was tested during each of Monday”s timing windows. I had expected its last test to break 6-points lower, targeting 2095.50. Instead, it was recovered to momentarily probe a fresh high, closing 6 points above 2101.50.

Friday”s breakout wasn”t confirmed Monday. That”s not necessarily bearish, and Friday”s trend high close still requires at least one more.

What”s Next… (Outlook and opportunities)
Yellen”s testimony Tuesday morning may have inhibited trending Monday. The proximity to fresh highs without reversing down suggests at least a probe is likely. No durable trend in either direction is likely to be a reaction to anything Yellen is going to say.

If Greece can be persuaded not to leave the Euro… then the rally must have pretty good friends in pretty high places. No, seriously.

Pattern points… (Setups and technicals)
Breakout! Friday”s close was the first one above a multi-session range. If confirmed by a second consecutive higher close on Monday, then at least an eventual third higher close would be required. Being a new trend high close on a Friday, a higher close is still required, but only eventually.

The latter setup may be more relevant after Friday”s 25-point high-to-low rally. And not just because it seems to have fully discounted the day”s anti-Grexit developments. But Friday breakouts aren”t often confirmed on Monday. And characteristics of the week”s multi-session range already suggested its next upleg would be temporary.

Friday”s rally did create room for some initial selling that doesn”t damage the upward momentum. But that”s the open. Probing higher highs at any point intraday wouldn”t prevent an afternoon sell-off that puts the rally on defense.

What”s Next… (Outlook and opportunities)
We”ll talk about different possible opens at the weekend”s Saturday Review. We”ll also review any stock chart requests. Click here as much as 30 minutes before the 9:30am ET start time.