Market Wrap

If not for Monday and Tuesday”s double-digit declines… then Wednesday”s complete retracement probably couldn”t happen. See? Sell-offs are good for the market. Keep telling yourself that if Thursday”s market starts retracing the ground that Wednesday recovered.

Pattern points… (Setups and technicals)
Retracing some degree of Wednesday”s rally is likely because it peaked within 3 ticks of its highest objective at 1964.00. That satisfied all available buying pressure without putting into play a higher target.

Also attracting price back down is the afternoon”s “no-bias rally.” Originating during a no-bias environment requires some future return to the 1933.00 bias-up signal that should otherwise define the bias environment”s upper-end. Rallying 22 points and 33 points above it don”t lessen the requirement. And its eventual retest often includes the actual 1:20 print, which was 1931.00.

There”s also Wednesday afternoon”s timing windows, which didn”t gain traction. Being far above the noon hour range, the bias environment exit did its job. But the final hour wasn”t entered any higher. And that”s despite probing a fresh high during the bias environment exit. Extending even higher after through the close? That often adds insult to injury.

Oversold RSIs at Wednesday”s 1918.00 low require an eventual retest, but that”s not immediately attractive. Neither is the two “V” bottoms — Wednesday and last Thursday — which do not a durable bottom make.

What”s Next… (Outlook and opportunities)
But the trend is your friend, until the end. The upside momentum must be disproved before a sell signal can trigger. Extending back to Monday”s highs should extend also through Monday”s highs. Then there might even be reason to forecast new highs. Otherwise, almost any delay to extending higher Thursday could open the door to a downdraft.

If Wednesday wants to ignore Tuesday”s sellers gaining traction… then it need gap up only 20 points. Easy.

Pattern points… (Setups and technicals)
About those oversold RSIs at last Thursday”s 1918.25, they”re the next lower objective. Tuesday”s next lower objective was 1927.00, which was tested and still being tested at the close. Unless Wednesday”s open were recovering the last lower objective at 1934.50, then the trend remains down.

Next in line is oversold RSIs at the two-month old 1890.25 “new Globex trend extreme.” That assumes Wednesday”s close is under 1927.00.

Lower lows are likely intraday. The bias environment exit was under the noon hour”s low and the 3:10-3:20 window trended down to fresh lows. Sellers gained traction for their efforts.Alternatively, gapping up above higher prior lows at 1942.00 or above the afternoon”s 1948.00 high would reverse the trend up.

What”s Next… (Outlook and opportunities)
FOMC Minutes will be released Wednesday afternoon. It”s one thing to range at the highs as if a tightened spigot can be compensated for. It”s another thing entirely to discover a shut-off notice in the afternoon mail. 

If Monday”s sell-off were resuming the decline … then it should have been more productive than just retracing Friday afternoon”s range. Especially after the noon hour managed to probe deep into Friday morning”s range. But not immediately rallying Tuesday would give the decline a benefit of the doubt for resuming… P.S. Click here for Monday”s post-close Market Wrap recording.

Pattern points… (Setups and technicals)
Monday”s open fulfilled the absolute minimum requirements left over from Friday”s session. Not that there weren”t several obligations, or that some weren”t neutralized. Everything that Friday”s session had forecast for Monday”s open was fulfilled, but only barely. 

Gapping up, probing higher, fulfilling the afternoon”s 1967.00 bias-up target… The reversal down could barely wait for those upside characteristics to have developed. Buyers never gained traction through any of it, so no unfinished business was left outstanding above — not even the barest of attractions.

No unfinished business was left outstanding below, either. RSIs diverged positively on the noon hour”s 1950.50 low. A short-squeeze setup coming out of the bias environment 4 points above the noon hour”s 1958.00 high wasn”t confirmed going into the final hour. An uptrending pivotal support narrowly avoided breaking lower at the close.

Actually, the uptrending support is being probed post-close. That”s not a relevant timing window, but not recovering it overnight would be bearish. Otherwise, Monday seems to have been about buyers expending minimum work to give up minimum ground.

What”s Next… (Outlook and opportunities)
Although the stock market remains open next Monday, there is potential for seasonally bullish influences going into the weekend. So, if a decline or another downleg intends to be productive this week, it will probably have to extend down Tuesday. Beginning any later could be too late.

If Friday”s close were bouncing instead of dipping… then a hold-long would have triggered through the weekend. Dipping from fresh highs back to support would have qualified, too. But the last hour”s narrow range ended in decline, which isn”t really relevant price action, and doesn”t undermine any other signals.

Pattern Points… (Setups and technicals)
A hold-long was compelling because buyers gained no traction Friday afternoon. The bias environment exit and the noon hour”s entry each were overlapping the noon hour”s high. So, extending higher immediately should require gapping up.

And there are attractions above that make Monday likely to extend higher.

Having traded up to 1963.00 during the noon hour, Friday afternoon”s 1959.00 bias-up signal triggered cleanly. But RSIs diverging negatively at 1963.00 was signaling near-term weakness. The 1959.00 bias-down signal held its retest, launching a move to fresh session highs at 1964.50. But the 1967.00 bias-up target was left outstanding.

That”s one attraction above.

Meanwhile, there is the likelihood for probing higher highs the day following a validated session-long rally. Friday”s gap up above the prior afternoon”s high completed the setup. Every timing window but one probed the prior timing window”s high. Despite the noon hour”s high holding several later tests, it was tested, and each test probed fresh highs. The setup was validated, so higher highs are likely to be probed Monday morning.

What”s Next… (Outlook and opportunities)

This weekend”s Saturday Strategy Session begins at 9:30am ET. I”ll post/send its link separately before the event, if not overnight — it will be different from prior sessions.

If Friday”s NFP were greeted from strength… then an initially negative knee-jerk reaction down would be retraced, and reversed back up into the weekend. But Thursday afternoon”s recovery peaked at resistance. Again. The same resistance as at Wednesday”s close. How”d that work out.

Pattern Points… (Setups and technicals)
Thursday afternoon”s complete retracement of the morning”s decline stopped short of recovering a prior high — like, Wednesday afternoon”s ~1943.50 prior high. That”s not necessarily bearish. But it could be, since the prior high was probed temporarily without closing above it. Not touching it at all would have had more bullish potential.

At least the reaction down didn”t break under prior lows. That would have confirmed the resistance test had held, and had launched a new downleg. That could still be the resolution, and just not yet in-play.

So, extending higher simply requires gapping up above the resistance that held Thursday afternoon. A lot of ground above could be covered for a lot of the session. Otherwise, opening flat or trying to recover from gapping down might probe fresh highs, but not for long.

Meanwhile, oversold RSIs at Thursday”s low must be retested at some point. Usually, sooner rather than later. Not rallying out of Friday”s open, i.e. not reacting favorably to the pre-open Employment Situation report, would more likely return to Thursday”s low.

What”s Next… (Outlook and opportunities)
Thinning participation ahead of Friday evening”s Yom Kippur services will make a normally less liquid afternoon less liquid. That makes trending underway difficult to stop, and harder to reverse. It also makes trending difficult to start, and makes prior highs and lows ultimately likelier to hold their tests.