Market Wrap

If Friday”s open were to dip… then it would be the fourth consecutive such open. Therefore, it would be unlikely to recover immediately like the prior three opening dips. Also there being three consecutive opening dips, Friday”s open isn”t likely to dip.

Pattern points… (Setups and technicals)
Thursday afternoon”s 2095.50 bias-down signal was probed during the noon hour, but a 4-point plunge, which ended within 3 minutes, and wasn”t probed any deeper. But it wasn”t recovered in time to avoid triggering at the bias environment”s entry. And it wasn”t recovered in time to be invalidated at the bias environment”s exit.

So, the bias-down wasn”t invalidated, and it”s target wasn”t met. But exiting the bias environment back AT 2095.50 does undermine the signal. Perhaps the 4-point plunge just knocked the wind out of the rally. Perhaps it was otherwise irrelevant expiration position-jockeying. I”m going to ignore it.

Three consecutive opening dips have been absorbed, and the last two barely pierced positive territory. That is not excessive optimism. Tuesday afternoon”s 2101.50 bias-up target remains outstanding as “unfinished business above.”

A downdraft is possible, but it would be unlikely to extend without first recovering to probe fresh highs. Meanwhile, fresh highs remain likely.

What”s Next… (Outlook and opportunities)
Friday”s expiration has several unique nuances. One is that trending through the opening 15 minutes is likely to trend in that direction through the day. Friday Factors will also apply, like the morning”s bias signal tending to persist through the noon hour.

If FOMC Minutes can”t produce more than a surge and retest… then Wednesday”s “inside day” can”t be very predictive. But it can be contrary, and it can suggest that initial trending out of Wednesday”s range will only be reversed. Probably not immediately, but nor after very long.

Pattern points… (Setups and technicals)
It took awhile. Forever, from some perspectives. But Wednesday”s opening drop finally recovered to prove it was only temporary. 

Overnight selling had been contained to Tuesday”s late pullback low. The extra dip before the open defined the range that persisted until the afternoon”s FOMC Minutes. The initially favorable knee-jerk reaction was retraced entirely, but only back to its origin. And then the initial favorable reaction was recovered.

Price action within so narrow a range as Wednesday morning is very frustrating to try trading it. But the bigger picture expectations — that the late extra dip would not extend — kept the focus on buy signals and upward resolutions.

Now the question is whether the afternoon”s fresh session highs fully rewarded Wednesday morning”s buyers for absorbing the probe into negative territory. They didn”t gain traction for their efforts, according to the bias environment exit and the final hour entry. And they only attacked Tuesday”s prior highs.

What”s Next… (Outlook and opportunities)
Wednesday”s last hour hovered pessimistically short of touching Tuesday”s highs. This is potentially bullish from a contrarian perspective, and it suggests fresh highs will be probed — probably Thursday and probably not by a little. But the hesitation is otherwise similar to Tuesday afternoon”s failed probe of fresh highs, which suggests that the next probe of fresh highs will be living on borrowed time.

If the rally has neutralized all upside requirements… then it is vulnerable to reversing down as sharply as it got here. No reversal signal is yet in play. But Tuesday”s new high close did neutralize one upside attraction. And Tuesday afternoon did probe fresh highs without gaining traction for the effort. Meanwhile, FOMC Minutes is released Wednesday afternoon, and expiration is Friday.

Pattern points… (Setups and technicals)
Tuesday morning was a great example of all the methodology”s parts coming together to produce a likely resolution. Actually, that belongs more to Tuesday afternoon. The morning was a great example of all the methodology”s parts offering context, and challenging that context along the way to their likely resolution.

First Trade and Market Wrap reiterated the bigger picture likelihood for extending the rally. That context made the bias down signal unlikely to be triggered if tested. It was tested, and didn”t trigger.

Testing but not triggering the bias-down signal puts into play an offsetting test of the bias-up signal. That objective becomes a requirement if not yet met when the bias environment is lapsing. When knowing the likely destination is higher, pullback limit tests can be held more confidently — if not also bought.

What”s Next… (Outlook and opportunities)
Tuesday afternoon”s bias-up signal triggered, and its 2101.50 target was left outstanding. That context suggests that any immediate pullback would be only temporary.

If not for this being a three-day weekend… then would a hold-long have been considered.? No. Not even a day other than Friday. The upside target was being tested when the cash session close was within 3 minutes. Exceeding it came later. If anything, a hold-short would have been interesting — in fact, the close”s extension up has been retraced already. But this IS the weekend, and Friday”s issues can be forgotten between Mimosas during Sunday brunch.

Pattern points… (Setups and technicals)
Friday Factors were everywhere. The morning”s bias persisted through the noon hour. Counter-trend sponsorship wasn”t durable. Afternoon trending drifted into the close. Those are the ones we discussed in the morning since they could influence intraday action.

Another one now has influence. Trends don”t end with a new extreme close on Fridays. And Friday was a new high close. So, even if the new week begins by immediately trending down — like, reacting to news — and even if the reversal were to persist for multiple sessions, a complete recovery would be expected.

Given that Monday is a holiday, reversing down would be interesting. Monday is the next Eurogroup meeting, and I”m not sure expectations can be downplayed any further. But this is the area of December”s highs, which also pushed back. And oversold RSIs at Friday”s 2082.75 low do require a retest at some point.

The template for a relentless recovery to new highs continues tracking. Friday could have probed sharply higher and been rejected by the close. That didn”t happen, so continually aggressive rallying remains likely — and likely to be rejected aggressively soon thereafter.

What”s Next… (Outlook and opportunities)
With no Saturday Review this weekend due to the holiday, extra time was taken during Friday”s post-close Market Wrap to review the bigger picture. Check the Activity Feed for its link soon. Have a great weekend,  Happy Valentine”s Day, and Happy President”s Day!

If this were expiration week… then the WedEX would have been bullish into and out of the weekend. However barely mildly bearish it was Wednesday, was totally invalidated by gapping up Thursday. There are differences in applying the WedEX setup ahead of a three-day holiday weekend, but the expectation would still be bullish into the weekend.

Pattern points… (Setups and technicals)
The rally is entrenched. By exiting Thursday”s bias environment above the noon hour”s high, and then by entering the final hour above the bias environment”s high, buyers earned the reward of controlling Friday morning”s bias environment.

The weekend”s impending illiquidity can leverage that entrenchment, since counter-trend sponsorship is difficult to generate. All the more so ahead of a three-day holiday weekend. The entrenchment, which marginalizes sellers — not necessarily the gain, since Friday afternoon”s can suddenly stop trending and start ranging narrowly.

Usually, the reward is produced by literally trending above prior highs during the morning, even if the open were to gap down. A similar setup Wednesday was less rewarding, or at least delayed the reward until the afternoon. Perhaps that was news-related, but the likelihood is still for probing higher highs.

This particular Friday has less exposure to headlines. But being a Friday, the morning”s bias tends to persist through the noon hour. So, triggering bias-down in the morning could still produce downside. And considering all of the bullish setups, not trending higher in the morning would suggest a deeper afternoon drop is possible.

What”s Next… (Outlook and opportunities)
Don”t forget there is no Saturday Review on holiday weekends. Please be sure to request stock chart analyses during the day Friday. Also, we”ll review the bigger picture during Friday”s post-close Market Wrap, which all Saturday Review attendees are welcome to attend. We”ll be discussing the ongoing template that looks for aggressively probing new highs and then rejecting them just as aggressively.