Market Wrap

If fresh highs are probed already… then what sponsorship will be available to defend against reactions down?

Pattern points… (Setups and technicals)
Not that there was much thought of getting there Thursday, but the next highest calculable resistance above the 2030.00 area was 2050.50. That”s the room for noise above 2047.50, its lower-end being the afternoon”s 2046.50 bias-up target. The rally tested that range”s upper-end into the position-squaring window.

And then the rally extended. 

The next higher resistance isn”t so much a calculation of buying pressure, but a retracement back into Thanksgiving week”s 2066.00 pivotal high. That”s the high prior to the next week”s higher high, represented by proxy at 2056.50. Recovering it often extends to test the actual high, sort of like testing a pivotal high. It was exceeded by more than 6 points, but not decisively since it wasn”t even touched before coming within 3 minutes of Thursday”s cash session close.

And that”s from an unstable base — Thursday afternoon”s late breakout after the bias environment exit and final hour entry had failed to gain traction. The correction template could still prevent a new high. The abrupt price change since Wednesday”s close might already fulfill the bullish WedEX so that it can invert back down. Either Thursday”s high has fulfilled the upside, or a fresh high is targeting 2074.50.

What”s Next… (Outlook and opportunities)
Having trended up into Thursday”s close, gapping down Friday under Thursday afternoon”s 2037.50 bias environment low could form a “session-long decline.” That”s only 17 points. Just gapping down under 2050.50 would undermine the rally”s momentum. Since Thursday”s rally gained no traction for its effort, extending higher without delay must gap up through 2062.00 and preferably also 2067.00. Meanwhile, being a Friday, the morning”s bias should persist through the noon hour. And being an expiration session, trending through the opening 15 minutes of volatility could extend in that direction throughout the day.

If it”s a knee-jerk reaction to news… then it”s weak-handed. This applies to econ reports, headlines, and FOMC Q&A sessions. So, when the market responded to Yellen”s sentences by declining, each of those dips merely stretched the rubber band tighter. And when those weaker hands were done, the rubber band could snap back up.

Pattern points… (Setups and technicals)
Yellen”s Q&A retraced the initial FOMC reaction from above 2007.00 to back under 1991.00 where the news had been greeted — and then lower to attack 1985.00. My buy signal triggered back above 1991.00, targeting new session highs and then 2009.50-2012.00.

The afternoon”s rally got to 2011.00. That”s still pessimistically short of recent rallies to this area, so a higher high up to 2017.75 is likely. Any higher would target the 2030.00 area.

My corrective bounce template finally caught, but not without first having to absorb 2-3 downlegs that had attempted to resume the decline. Those caused a delay that allows the template to extend through Thursday morning. Not already reversing down by Thursday afternoon could extend the rally through Monday morning.

In fact, the WedEX indicator triggered passively bullish. Had Wednesday not been an inside day, the indicator would have been actively bullish. WedEX controls primarily Friday afternoon and Monday morning. Since it was a passive signal that triggered, extending much higher too quickly Thursday could invert the bias back down. Regardless, the near-term burden of proof is on sellers.

What”s Next… (Outlook and opportunities)
As with the two prior sessions closing in this range, so long as Thursday”s open isn”t already in the process of rejecting Wednesday”s last rally legs — at least probing back under 1999.00 or 1985.00 — then the corrective bounce remains likely to extend higher Thursday.

If Tuesday”s pre-open plunge had lasted only several minutes longer… then the decline”s next massive downleg would have been underway well before noon. But isolating it served the same purpose as Monday morning”s slide, identifying that drops had begun rewarding themselves fully without attracting new sponsorship.

Pattern points… (Setups and technicals)
Context helped to prepare for that, too. Both Friday and Monday”s declines had not gained traction for their earlier efforts. Their sellers were fulfilled, without putting into play any lower target that would require the trend to resume. Extending the decline without an active lower attraction tends to be short-lived.

But while the morning”s sellers had once again failed to attract sponsorship or to gain traction, buyers also failed the same task. Tuesday”s corrective bounce back into positive territory was isolated within the morning”s bias environment. 

Sellers may have overcome their shortcoming by trending back down through the afternoon”s multiple timing windows. They made a fresh low under the decline”s next lower objective at 1969.00, which had been tested already intraday at the open. But it was too late for anything but to overlap it. Still, not much more than a gentle breeze could push price over the edge and start trending to its next lower objective at 1907.50. 

A corrective bounce has room up to the 2020.00 area while still being only a temporary correction. Before Tuesday afternoon”s extra downleg, a temporary correction was likely either into or initially out of Wednesday afternoon”s FOMC events. Gapping up above that downleg”s 1992.75 origin would make a corrective bounce likely again.

What”s Next… (Outlook and opportunities)
Is a dry cleaners morning possible in this environment? Three conditions would contribute to that: 1. If the drop isn”t extending at the. 2. If the corrective bounce”s path isn”t clear coming out of the open. 3. An impending event is inhibiting price action… The afternoon”s FOMC even is the third condition, but the first two are much more influential. Trending down into Wednesday”s open could be very ugly intraday.

If Monday”s sellers still couldn”t extend Friday”s late drop… then is the decline”s sponsorship fully satisfied, or just patiently awaiting a bounce into Wednesday”s FOMC news (and perhaps also out of it)?

Pattern points… (Setups and technicals)
Monday”s drop was isolated to one timing window (the morning”s bias environment). It originated from 2 points under the origin of Friday”s last drop (2012.50). It was recovered back to Friday”s 1995.25 cash session close. Price action ranged sideways into the close without gaining traction either way.

The decline gained no new traction for its efforts. But it didn”t relinquish any ground, and buyers gained no traction either. There is no accumulation, and other requirement to reverse the trend up. Reversing the trend up would be only noise. That is, until it formed an accumulative pattern or recovered high enough.

Having avoided extending down aggressively through Monday”s close, declining aggressively at Tuesday”s open would still be credible for resuming the decline. Otherwise, the alternative would likely be a corrective bounce into Wednesday afternoon”s FOMC.

What”s Next… (Outlook and opportunities)
Extending down aggressively early enough Monday had the opportunity to tumble 70 points. That door re-opens through Tuesday morning. But escaping one more timing window without trending down would more likely marginalize sellers through the following morning.

If not for the impending weekend”s illiquidity… then would Friday morning”s low have been probed at all before the close? It was actually broken considerably, but not until the last hour”s capitulation.

Pattern points… (Setups and technicals)
That”s Friday”s key element. The decline didn”t gain traction  — meaning that the drop through Friday afternoon was sufficient to reward earlier sellers for their efforts. Sellers were content as the bias environment exit and noon hour”s entry both were within the noon hour”s range. A 24-point drop waited to begin until the final hour was underway.

The late sponsorship is either weak hands about to be absorbed and reversed, or strong hands extending the drop at an accelerated pace. The former scenario would be a strong possibility if it weren”t forming over a weekend — gapping up enough Monday could have been bullish. Gapping up too shallowly is likelier, and the latter scenario of simply extending down is likeliest.

The pattern is somewhat reminiscent of Friday, October 16, 1987. It seemed initially to have stabilized a multii-session drop, then plunged into the weekend, and out of it. Things are different now, as they always are. Late sponsorship usually doesn”t extend, or it is reversed if it tries to extend. October ”87 was an exception, and the same door is open Monday.

Things are always different, but those things always qualify as recent developments that price hasn”t yet discounted. Two candidates are Democrats threatening another capitol closure, and Wednesday”s quarterly FOMC Q&A threatening to reveal the Fed can”t save the day. Friday”s so-called Quadruple Witch compares closest to 1987”s crash as that exacerbates the institutional risk reassessments, which wreak havoc on portfolios,

Should be a fun week.

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What”s Next… (Outlook and opportunities)
Another “Black Monday”? This would follow Tuesday”s failed trend change signal, Wednesday”s confirmed trend change signal, Wednesday and Thursday”s sellers gaining traction, and Friday”s sell-off into the close. A test of 1969.00 seems likely on this leg — Friday”s cash session close was 1995.50 and futures extended down another 5 points. Back above 2010.50 would suggest a deeper drop had been avoided… for the time being.