Market Wrap

If the WedEX setup is applicable to 3-day weekends… then Wednesday”s close isn”t bullish. That”s because the intraday probe above prior highs was rejected, which normally would be passively bearish. But the probe”s brevity lacked substance, so rejecting it isn”t very relevant either.

Pattern points… (Setups and technicals)
Whether or not it was the result of the pins and needles we discussed before Wednesday”s open, Tuesday afternoon”s buyers weren”t very well rewarded for having gained traction. The overnight slide to 2057.75 was retraced back into positive territory, but not above Tuesday”s 2066.00 highs, and not with complex trending. 

“Unfinished business above” at 2067.25 was created and left outstanding to attract price back up. Then its attraction was neutralized when tested during Wednesday afternoon”s rally up to 2069.75. 

That afternoon rally did probe above Tuesday”s highs. But it was only a single probe, and not complex, which still wouldn”t qualify as rewarding Tuesday afternoon”s buyers.

Meanwhile, the noon hour”s drop to 2053.25 left outstanding oversold RSIs that require the low”s retest. The afternoon”s 2052.25 bias-down target was left outstanding, too.

What”s Next… (Outlook and opportunities)
There is no unfinished business above, only below. A hold-short setup triggered, which barely avoided being invalidated, by delaying the last-minute recovery above 2063.50 until after getting to within 3 minutes of the cash session close. Trending down overnight is likely so long as 2067.00 holds as resistance — preferably with Globex opening down sharply through the late 2061.00 low.

If the Chartroom”s late outage ate the Market Wrap recording… then ask any questions in this post”s comments section. I”m in contact with the host now about resolving their issues.

Pattern points… (Setups and technicals)
Tuesday”s session was essentially the pattern that Monday could have been. Backing-and-filling through the morning, rallying through the noon hour, and retracing Friday”s losses.

Friday”s ~2068.00 highs weren”t tested. Had they been, then closing below them Tuesday would have been bearish. Instead, the rally”s patience keeps alive potential for extending higher.

Tuesday afternoon”s buyers traction for their efforts, which also keeps alive the upside potential. Exiting the bias environment above the noon hour”s high, and entering the final hour above the bias environment”s high, should reward buyers with control of Wednesday morning”s bias environment. Exiting the open under 2057.00 would suggest otherwise.

Exiting the open under 2053.00 could even trigger a “session-long decline” setup. I”ll review its parameters in the First Trade blog post if overnight action threatens it.

Otherwise, while a downdraft from higher levels remains possible, be careful being short. The template that we”ve been discussing since last week, which continues tracking, could probe new highs at a steep slope.

What”s Next… (Outlook and opportunities)
With a three-day holiday weekend around the corner, Wednesday”s close is similar to a pre-expiration WedEX signal. There are a couple of different conditions. But essentially, a fresh high close Wednesday that isn”t invalidated Thursday could keep alive the rally”s momentum into next week.

If the rally just needed an extra day to re-organize… then Monday”s fresh lows can be dismissed. Sunday night”s lower low was recovered back up to Friday”s cash session close. Monday afternoon”s lower low was recovered back into Sunday night”s range. All of which barely signals that the selling didn”t do new damage, and none of which yet signals momentum has reversed up.

Pattern points… (Setups and technicals)
So, round two Tuesday, for resuming last week”s rally? Reacting down from a retest of the two prior highs is predictable enough to have an impact. Reversing down into a new downtrend is too predictable to be credible.

That doesn”t prevent extending the reaction down overnight, or into Tuesday morning. Potential to 2032.00 remains outstanding since Monday”s late bounce didn”t recover a prior high like 2046.00.

Similarly, extending the bounce overnight would target 2049.00, whose recovery through Tuesday”s open would then target at least 2055.75. That”s just to satisfy the “unfinished business above” which was left outstanding from Monday morning”s bias environment. Multiple opportunities to invalidate it were rejected.

What”s Next… (Outlook and opportunities)
The likely resolution to resume the rally remains intact. That doesn”t preclude a sudden, steep and substantial drop — but there isn”t yet a sell signal, and its next opportunity to trigger is not until Tuesday”s bias timing window.

If the NFP reaction were initially down… then its recovery would have prevented the afternoon”s drop. The afternoon might have extended much higher already. And that optimism would be expended, instead of ending the week pessimistically discounting bad news..

Pattern points… (Setups and technicals)
The week”s pervasive optimism was identified throughout by the timing of its post-open dips that recovered to fresh session highs. Friday”s reaction to the Employment Situation report underscored that optimism. But despite trending down into the close, optimism”s back isn”t yet broken.

That”s the point of probing a fresh high — it creates room to absorb selling pressure without damaging the trend. And Friday”s probe of fresh highs held up well into the noon hour before reversing down. Through Friday afternoon. The least relevant window of the week.

So, Friday”s reversal down was substantial, and its sellers gained traction for their effort (exiting the bias environment under the noon hour”s low, and entering the final hour under the bias environment”s low). But the drop”s minimum 2044.00 target was met to within 2-3 ticks. The 2041.00 lower-end of the target range could or should be met, too. But until a relevant window breaks below it, last week”s rally is likely to resume.

Even then, not holding 2041.00 would target another 12 points lower. If the pullback must extend that deeply before resuming the rally. then its test should be well underway Sunday night. Any deeper pullback than that could prevent resuming the recovery, since new lows would be in-play.

What”s Next… (Outlook and opportunities)
The weekend”s Saturday Review begins at 9:30am ET, and I”ll send a reminder in the morning. Click here to log-in up to a half-hour before the event.

If this third visit to recent highs reacts down again… then is it likely to retrace back to interim lows? No. Having tested the area of Thursday”s high twice during the current multi-month channel, the only credible reaction down would come from a fresh high close. Dipping any earlier from any lower would likely retrace only a portion of the past week”s rally.

Pattern points… (Setups and technicals)
Two consecutive mornings Tuesday and Wednesday reflected accumulation that made their midday flat-to-lower ranging likely to resolve up. And despite Wednesday afternoon”s buyers not gaining any traction before probing higher, the post-close plunge was recovered anyway.

Now comes Thursday”s session, apparently trained to expect the afternoon probe of fresh session highs. The midday flat-to-lower ranging once again prevented buyers from gaining traction. But a very late effort extended higher.

The rally from January”s ~1980.00 low eventually targeted 2059.00. It was attacked to within 1 tick at Thursday”s late high. Hesitation there reflects pessimism, which is potentially bullish from a contrarian perspective. This doesn”t require trending higher without delay, but it makes an initially negative knee-jerk reaction to the Employment Situation report likely to reverse up.

What”s Next… (Outlook and opportunities)
Gapping down under Thursday”s 2048.50 noon hour low might be the only credible way to avoid fresh highs Friday. Fresh highs would be vulnerable to reversing down — earlier rather than later, if at all.