Market Wrap

If not for the late ECB news… then a reaction down into the close was still likely. Just not as deep. But the target had been met essentially, and its sponsorship satisfied..

Pattern points… (Setups and technicals)
Two consecutive opening surges met selling pressure that was nevertheless absorbed, and then reversed to fresh session highs. Tuesday”s open gapped up and ultimately absorbed the morning”s drop. Wednesday”s gap down bounced, but still had to absorb a fresh session low before extending higher.

It”s difficult taking sellers seriously with those resolutions. That doesn”t prevent dipping — this was a major theme Tuesday morning, that its selling took price down, but it didn”t reverse the trend down. 

Of course, it”s difficult NOT taking Wednesday”s late sellers seriously. The reaction down from 2049.00 to 2038.00 and then to 2030.00. Twenty points in 10 minutes. That has extended another 7 points to 2023.00 post-close.

Is this reaction just exacerbated by the “fortune” of its timing? The afternoon rally”s sponsorship was fulfilled by testing the 2049.75 target  to within 2-3 ticks. Those buyers had no traction, anyway, since the bias environment exit and final hour”s entry were within the noon hour”s range. There was no other required upside. And after the news, it had become too late to attract countertrend sponsorship. 

What”s Next… (Outlook and opportunities)
Wednesday”s late reaction can extend down near-term — and not just to test the 2023.00 post-close low. The rally from under 2000.00 Monday afternoon requires being retraced at some point. Its test would be vulnerable to extending down anyway. The more bullish scenario would be to already start retracing the drop before Thursday”s open, if not already opening above its origin.

If Tuesday”s dip had resolved up sooner… then the balance of the session would have trended much higher. Not that adding 10 points was anything to sneeze at. And it avoided a potential plunge setup. But it was hard fought.

Pattern points… (Setups and technicals)
In other words, there”s still pessimism. After gapping up 7 points, and after extending another 18 points, after trending higher through the afternoon… there”s still pessimism. 

Pessimism is potentially bullish from a contrarian perspective. So, Tuesday”s 25-point rally is entirely capable of extending higher Wednesday.

Nothing prevents the pattern from extending higher without delay. But nothing requires it, either. Only Tuesday afternoon”s bias environment exit reflected momentum, and the final hour”s entry did not, so an interim dip Wednesday morning is possible.

What”s Next… (Outlook and opportunities)
Gapping up and extending higher through the morning would all but require probing recent highs above 2059.00-2062.50 the same day. Gapping down under the last relative low at 2032.00 wouldn”t necessarily reverse the trend back down, but the session would be on defense.

If … then .

Pattern points… (Setups and technicals)
No sellers were trapped by Monday afternoon”s rally to fresh session highs. That”s not often the case. Sure, rallies can develop without trapping sellers, but Monday afternoon”s rally was pretty substantial — 45 points off the morning”s low.

Nevertheless, Monday afternoon”s rally to 2018.50 began from the bias environment”s 1983.50 low. But the bias environment exit and final hour entry were still well under the noon hour”s 2000.00 high. That”s not a stable base for launching a durable rally. Perhaps if the rally had recovered a prior high, but it did not. (More on that in a moment.)

The 3:10-3:20 timing did trend up to fresh highs. That would have been bullish if either the bias environment exit or final hour entry had exceeded the noon hour”s high. Instead, the 3:10-3:20 window produced follow-through into the close, which has now lapsed.

So, what if the rally HAD recovered a prior high? Thursday-Friday”s ~2017.50 high was tested, but not exceeded. The next prior high that Tuesday”s open can recover to gain traction is essentially 2038.00+. That”s another 20 points higher, and probably needs news to achieve it — news that attracts more buyers through the open instead of reversing back down.

What”s Next… (Outlook and opportunities)
Had Monday”s 3:10-3:20 window not trended up, or not extended higher through the close, then Tuesday”s open need only have recovered Thursday-Friday”s ~2017.50 high to extend Monday afternoon”s rally. Instead, all available buying pressure has been expended without gaining traction for the effort. And oversold RSIs at Monday”s 1973.25 low require a retest.

If Friday”s range were any wider… then it might have touched either end of Thursday”s range. Friday”s post-open high to post-open low measured ~31 points. Fun Fact #1: the prior session”s range was 37 points. Fun Fact #2: that represented the last 90-minutes of trending. Fun Fact #3: all of Friday”s range was contained within Thursday”s.

Pattern points… (Setups and technicals)
Friday was an “inside day,” biased downward, in a downtrend. Most any other day, that would make it difficult to extend the downtrend. The next day would be likely to rally, or else an immediate probe under prior lows would likely recover into a rally.

Friday”s aren”t as predictive. And regardless of the open”s gap down, the intraday bias was flat until the afternoon”s bias environment began lapsing. That last 90-minute window was greeted at post-open highs, which had just filled the gap back to Thursday”s close.

So, except for that last 90-minute plunge, this setup on most any other day would be likely to extend the downtrend.

Thursday”s pivotal low (the low prior to its actual low) was narrowly avoided. Touching it would have entrenched the afternoon”s downward momentum to ensure absorbing a bounce. That could be bullish, to the extent that the bearish setup was avoided.

The late-morning reaction to the Greece headline”s trial balloon should be a warning that favorable news over the weekend could trigger a bigger rally Monday. Thursday”s bullish Pivot Reversal didn”t produce, but neither was it rejected. Regardless, making it through the weekend without favorable news would be likely to probe sharply lower.

What”s Next… (Outlook and opportunities)
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If Thursday”s Pivot Reversal doesn”t extend the recovery immediately… then it”s a failed setup. A failed setup, after fully forming, typically becomes as bearish as it had potential to be bullish..

Pattern points… (Setups and technicals)
Thursday”s recovery was a thing of beauty when it came to both fulfilling and trapping sellers. Wednesday”s sellers got control of Thursday morning”s bias environment, during which they held tests of lower targets. But their timing had already suggested they were weak-handed sellers that wouldn”t gain traction.

That”s half the equation to a recovery — fulfilling and trapping sellers.

The other half of the equation is to reverse the trend back up, and we had to give buyers leeway for that. The afternoon”s rally was still overlapping the relevant level when it was time to override the no-bias signal, but we trusted it and it extended 18 more points anyway. Extending high enough could have overridden the late start, the relevant level was once again being overlapped when exceeding it would have been decisive.

Finally, the recovery did extend a lot, as was expected if the recovery happened at all. But it stopped a little short of touching its minimum objective. At least the minimum objective wasn”t tested and rejected. And at least the morning”s high was exceeded, which formed a bullish Pivot Reversal setup.

But Friday”s open must still prove that Thursday”s upward momentum has gained traction, and not just refueled sellers. If sellers are refueled, then they”ll be happy to soon learn that support has been chipped away.

What”s Next… (Outlook and opportunities)
This being a Friday, the morning”s bias signal tends to persist through the noon hour. Trending is difficult to begin, and more difficult to stop.