Market Wrap

If the reaction to ECB”s QE isn”t bullish… then Thursday”s open is probably indicated to gap down sharply.

Pattern points… (Setups and technicals)
Wednesday”s session did everything it could to facilitate a favorable reaction to Thursday”s pre-open ECB statement. At least, to facilitate an initially favorable reaction targeting 2041.00-2044.00: 

— Tuesday afternoon”s buyers got the reward they were due by controlling Wednesday morning”s bias environment, but no more.
— Reacting down into the afternoon bias environment”s low kept optimism in-check.
— And upward momentum from the last 60-90 minutes” rally will greet Thursday morning”s news.

A favorable reaction could still be reversed in the afternoon. But if the initial reaction isn”t favorable, then a reaction down to last week”s lows is probably underway. Wednesday”s closing action rallied, and the bias environment contained the afternoon”s 2016.25 low, so gapping down under it would form a “session-long decline” setup.

What”s Next… (Outlook and opportunities)
Although the ECB QE size was floated Wednesday morning, that was only a leak, perhaps a trial balloon. And it was criticized. Markets held up just for knowing with much greater certainty that some sort of program would be announced within hours. Presumably, the actual total won”t be lower. But even if it is higher than what was leaked, the pattern”s timing doesn”t change.

If Wednesday”s open doesn”t gap down under relevant support… then the morning should be very productive to the upside. The afternoon might hesitate, or run into trouble, ahead of the ECB policy statement.

Pattern points… (Setups and technicals)
Tuesday afternoon”s rally gained traction for its effort. The bias environment was exited above the noon hour”s high, and the final hour was entered higher. Typically, the reward to Tuesday”s buyers is control of the next morning”s bias environment. 

Trending higher Wednesday morning can be invalidated by gapping down sufficiently. A pullback has room down to 2009.50 before suggesting the recovery”s momentum is losing traction.

An overnight dip can”t be discounted, but it isn”t required. The current environment”s optimism remains in-check — the afternoon”s recovery peaked pessimistically1 tick short of touching natural resistance at the 2020.00 open”s gap, and that reacted down in two pre-close dips.

None of which interferes with this rally still being only a temporary correction. “Temporary” doesn”t speak to duration, only to durability — last week”s lows will need to be retested, not for the sake of retesting them, but because they lacked integrity for forming a durable bottom.

What”s Next… (Outlook and opportunities)
The annual State of the Union address has no bearing on the market. But it has distracted attention from the BOJ policy statement due overnight.

If the three-day weekend has any effect… then it is already discounted by price action through Wednesday”s close. The bearish WedEX has little excuse for letting Friday afternoon”s rally develop during it watch. It had measured a relevant degree of pessimism as of Wednesday”s close. But Friday did not behave bearishly.

Pattern points… (Setups and technicals)
That is, not unless a sudden, steep and substantial plunge were to compensate for its detour. And that”s still in the realm of possible resolutions for the passive bearish WedEX. Actually, it is the last remaining possibility. Setups to trend down at noon, to trend down at the 1:20 bias timing window, or simply to trend down before the close, all came and went.

In the process of ignoring its bearish bias, Friday afternoon did form a potentially bearish setup. That is the bias environment”s Symmetrical Triangle, a pattern that tends initially to break falsely in one direction before reversing more substantially in the opposite direction. Reversing is difficult on expiration day, so perhaps that stage is being delayed until Sunday night.

Meanwhile, the afternoon”s ranging actually began before the bias environment and lasted through it. Fresh highs weren”t probed until the last half hour, the least relevant timing window. Until then, Wednesday”s 2005.00 cash session closed had been serving as resistance.

WedEX missed its opportunities to invert and become bullish. So, either it failed, or else next week gets off to an ugly start.

What”s Next… (Outlook and opportunities)
There”s no Saturday Review this weekend, so the post-close Market Wrap looked at the bigger picture after discussing other markets. Please post any questions to the Activity Feed and I”ll get to them during the weekend. Enjoy!

If Thursday”s open doesn”t gap down… then Wednesday afternoon”s buyers will be rewarded for having gained traction.

Pattern points… (Setups and technicals)
Wednesday afternoon”s buyers gained traction for their efforts. This was determined by exiting the bias environment above the noon hour”s high, combined with the 3:10-3:20 timing window trending to fresh session highs (as a proxy to not entering the final hour above the bias environment”s high). 

So, buyers should be rewarded with probing higher during at least the next timing window Thursday morning. That can be negated by gapping down under 1992.50”s last relative low.

The afternoon”s short-squeeze was signaled by exiting the bias environment above the noon hour”s high, after the same timing window probed fresh session lows. Since the session-long decline had yet to produce a counter-trend timing window, we were able to anticipate that would be the final hour. 

Knowing the last hour”s likely uptrend allowed us to anticipate the short-squeeze from 1988.25 instead of waiting for 1995.50.

The squeeze”s minimum objective was to probe fresh session highs above 2007.00, probably also above 2010.00. The lower objective was only attacked through the cash session close, but the higher objective is being tested before the Globex open.

Wednesday is the second consecutive session to probe a fresh low, but end the day overlapping the prior session”s low — without also recovering the prior session”s close. That”s deep enough to trigger a bearish WedEX, but not deep enough for the signal to be more active than passive. Thursday”s oen could clarify that. Breaking back under the last session”s 2001.00 low would make the WedEX actively bearish. Gapping up above the 2023.75 last relative high would make the WedEX passively bearish.

WedEX reflects strong hands positioning into expiration. Wednesday”s close is the crescendo of that activity. It forecasts the bias Friday afternoon and Monday morning.

What”s Next… (Outlook and opportunities)
Reminder: I must be away from the screens during Thursday”s final hour. Unlike Tuesday, I will not update the site again before Friday”s open. This has been an unusual week, and that won”t be repeated — I appreciate everyone”s latitude!

If one day”s price action can swing so widely… then another day”s price action can swing widely. It”s the “birds of a feather” rule. They tend to flock together. Friday”s approaching expiration is enhancing the volatility, and that influence isn”t likely to wane.

Pattern points… (Setups and technicals)
Tuesday morning”s rally put 2052.00 at risk of being recovered. Not holding  its test Thursday and Friday led to Monday morning”s drop. Not recovering its retest Tuesday led to the morning”s pullback — and Tuesday afternoon”s drop fell through the two tests” interim low. 

There”s no bearish reason to revisit 2052.00 again. Another retest at this stage would be likely to signal new highs in-play.

There was a bullish reason to revisit Monday”s 2015.25 low. So long as oversold RSIs there required a retest, a recovery attempt would be suspicious. Tuesday”s plunge retested 2015.25. Not by a little, and not briefly. Yet Tuesday”s close had recovered to overlap 2015.25.

The likelihood is for the decline to extend. Bouncing first isn”t likely, but bouncing first is likely to fail.

There is potential for a ”session-long decline” setup. Tuesday afternoon”s low printed during the bias environment, and closing action essentially trended up (it happened to hold a test of its 2022.00-2023.00 bounce limit). Gapping down Wednesday under Tuesday afternoon”s 2001.00 low would be likely to trend down through the close.

Somewhat similarly, a recovery could be signaled by immediately recovering 2029.00, if not also 2037.00. And that door is open only because Tuesday”s close was still overlapping Monday”s low. Oversold RSIs at Tuesday”s low make it unlikely.

What”s Next… (Outlook and opportunities)
My WedEX will trigger at Wednesday”s close. It forecasts possible bias into and out of expiration. I expect an active signal, not passive, which has a more aggressive resolution. We”ll discuss it during the afternoon as the signal begins forming.