Market Wrap

If not for the afternoon political speeches… then the new high targets could have been met intraday Wednesday. The overnight rally wanted it. The noon hour”s recovery wanted it. The afternoon even attempted to rally while two high-profile speeches were being televised. Stopping short of probing fresh highs only managed to keep alive pessimism.

Pattern points… (Setups and technicals)
And pessimism can be bullish from a contrarian perspective. So, repeatedly stopping short of new highs is increasingly bullish, right?

Maybe. Now highs would keep the burden of proof on sellers. But the ongoing ranging has formed “congestion” which has become an attraction, too. 

In other words, buyers are earning at least a temporary, obligatory fresh high for having prevented downlegs from extending. Meanwhile, the ongoing teasing and delay is making the fresh high all the likelier to be only obligatory. Temporary.

First things, first. Another downdraft would likely be recovered, again. A probe of fresh highs would not be assured of extending.

What”s Next… (Outlook and opportunities)
Quite a busy day ahead for the econ calendar. Then comes Friday Employment Situation report. And the market is hovering at its highs, with two days of illiquidity ahead. Keep the trend in mind, keep counter-trend positions small and brief, and be aware of when the trend changes (and when it has not).

If the drop into Tuesday morning was all about trapping weak-handed sellers… then simply retesting Monday”s high might be aiming too low. But if it was strong hands retaking control, then fresh highs shouldn”t even be threatened.

Pattern points… (Setups and technicals)
I had counted out “ineffectual pessimism” at Monday”s high. The timing of its probe suggested that optimistic buyers had become more influential than trapped shorts. The latter had involuntarily aided the rally by being forced to cover. Monday”s last surge was free of that influence.

It didn”t get very far. Essentially the balance of Monday afternoon trended down. So did Tuesday”s open. Pessimism wasn”t quite dead — but there”s still the question of whether it can get up and walk around.

After gapping down, the entire session remained in negative territory (with a small early exception), probed two prior sessions” lows, and closed negative. Since prior lows held through the that”s only “ineffectual pessimism.” 

Gapping up would be credible for recovering back to Monday”s highs, aggressively at a steep pace. Any shallower improvement would be vulnerable to behaving more pessimistically.

What”s Next… (Outlook and opportunities)
Ineffectual pessimism should resolve up by gapping open above one or two prior highs at 2010.00 or 2013.50. Even that would be vulnerable to reversing down through the open. But avoiding that, and triggering bias up, should at least temporarily test fresh highs. Gapping down would be unlikely to hold Tuesday”s 1995.25 low, while extending down to 1989.50.

If the rally”s durability depends on pessimism… then Monday”s late-afternoon slide is living on the edge. It originated from fresh highs, which reflects optimism. Closing under the morning”s low could have been catastrophic..

Pattern points… (Setups and technicals)
Monday”s higher close resolves one thing. It”s not very relevant, until it is. That”s the unlikelihood for a trend”s extreme close to be on a Friday. Immediately trending down from Friday”s new trend high close would have been only temporary, since a higher non-Friday close was required. Monday”s new high close need not be the last for this trend, but it can be.

And it might be part of the trend high, at that. 

Monday”s 2019.25 intraday high neutralized the outstanding “new Globex trend extremes.” Unrelated to that, Monday”s 2012.00 close was back under the prior session”s highs. And sellers sort of almost nearly borderline gained traction. Kinda. The bias environment”s exit slid back to the noon hour”s lows from above its highs, which wasn”t bullish.

Still, the afternoon slide only slightly pierced the morning”s low and held it. Bullet dodged. And the 2021.25 bias-up target became “unfinished business above.” Neutralizing that Tuesday won”t tolerate hesitating again, let alone reversing down, if the rally intends to extend.

What”s Next… (Outlook and opportunities)
Monday”s close firmed back up toward 2013.50 resistance, but no higher. An attack on 2015.00 was likely, so its recovery would target fresh highs and presumably 2022.00. I”ll continue looking for fresh highs — however temporary they may be — unless 2006.00 were broken through Tuesday”s open, which could extend down to 1990.00.

If you”re not busy wiping egg yolk off your door… then join us for the Saturday Review at 9:30am ET. It”s being skipped the following weekend, so be sure to attend… Click here to enter.

Pattern points… (Setups and technicals)
From a contrarian perspective, pessimism is potentially bullish. That is, if the pessimism doesn”t gain traction. Wednesday afternoon”s post FOMC dips and that night”s lower low spent a lot of time probing support, repeatedly, and not always by a little. But never by enough at the right time, not when selling could have gained traction.

Fast-forward to Friday”s opening drop. Its sizable opening drop. It probed relevant support, several times. And at the bias timing window, sellers finished forming what would become the session low. One big difference (there are several smaller ones) is that Thursday”s session rallied sharply. Friday”s rally was fully developed overnight.

There is a fine line between pessimism and apathy. Friday”s opening drop was the former, but not recovering intraday was more the latter. Pessimism interfered with testing either of the outstanding overnight highs, then apathy prevented a bullish consequence before the close.

What”s Next… (Outlook and opportunities)
That doesn”t undermine the potential for extending higher Monday, if not already compensating for the delay by surging Sunday night. But it makes extending higher Monday or later less durable. New trend high closes on Fridays tend not to be a trend”s highest close — a safety feature if the rally were corrected Monday, but no longer relevant if Monday were to close higher.

If the rally doesn”t need QE to encourage it… then broken quote systems are only a bump in the road, right?

Pattern points… (Setups and technicals)
And now, to the question everyone”s asking, here”s the answer: Yes, and no. Thursday”s close was above the recent rally”s 1984.25 target, but not in time to be relevant. 

1984.25 was tested during the noon hour. A surge from there proved its continued influence. The entire bias environment developed above it. And the last hour ranged around it — until the final 15 minutes.

If nothing else, 1984.25”s retest didn”t necessarily hold. But it was overlapped by every leg after returning to it. Lifting off to close above it still left a leg overlapping it. It is still being tested.

Either 1984.25”s test marked the beginning of a topping pattern that will launch a downleg retracing all of the two-week old rally, or else new highs above 2020.00 will be in-play.

What”s Next… (Outlook and opportunities)
This being a Friday, the morning”s bias signal is likely to persist through the noon hour. Neither buyers nor sellers gained traction Thursday afternoon, so there is no requirement to trend at all, in either direction. Still, each did try — the bias environment was exited above the noon hour”s high, and the final hour was entered under the bias environment”s low — so narrow dull ranging would be surprising.