Market Wrap

If the market wanted help absorbing Friday”s NFP… then dropping deeply to test far away “lower prior highs” is one way to do it. Expend a lot of selling pressure so it”s not a threat later. Entice shorts to join in, and they”ll help to push price higher when they cover. It”s a perfect plan. That is, until the decline falls below supports that were maintaining the trend..

Pattern Points… (Setups and technicals)
And that”s the big question. Is a healthy correction of the rally now/soon ending, or is the decline about to shift gears into hyperdrive? Have the bearish themes of the day discounted themselves in falling prices — Central Banks running out of tricks, Ebola coming to the US, ADP foreshadowing Friday”s NFP? Or, is the market precariously positioned to absorb selling pressure from the next shoe to drop?

The late 10-point bounce peaked at the Aug 15 1943.50 “lower prior high” whose recovery through the close could have undermined the decline. Immediately recovering 1952.00 Thursday could serve by proxy. Above 1957.00 would confirm.

Meanwhile, the required retest of oversold RSIs at Wednesday”s 1933.75 low could resume the decline with new sponsorship that is more dramatic. Unless the retest were neutralized overnight, and Thursday”s open were greeted in rally mode.

What”s Next… (Outlook and opportunities)
I”m creating a matrix / decision tree that I call the “3x3x4” describing how to apply the 3-minute / 4-tick rule to signals and limits. This is the best time for you to tell me ways that you think about the rules successfully, or any confusion you have with them, so I can design a more comprehensive utility for exploiting price action with my methodology. Just message me on the site, or email me, or call.

If you have any suggestions for this post-close post… then please let me know today or tomorrow. I”m changing the format a little to simplify digesting the setups that I describe every day — which are relevant, at what prices, what are their triggers and targets, etc — and reducing the narrative a little. I want to try incorporating any suggestions you may have, too… Thank you!

Pattern Points… (Setups and technicals)
For all of its wide-ranging and multiple swings, Tuesday”s session accomplished nothing. At least, neither sellers nor buyers accomplished anything. Each did lay groundwork for a later break, but with different consequences.

Buyers probed Monday”s highs and Friday”s close. Both held their tests. Whether that is bullish or bearish depends on its resolution. Reacting down under a prior low would be bearish. But Tuesday”s reaction held a test of prior lows. The bias environment”s exit and the final hour”s entry both were testing the noon hour”s low. This suggests that Tuesday”s buyers chipped away at resistance.

Tuesday”s sellers went out testing support, probably on the way to fresh lows. But not with any grander designs than to fill the gap back to Monday”s 1957.00 gap open, or to 1954.75 or 2 points lower.

Probing fresh lows overnight and greeting Wednesday”s open in recovery mode could be very bullish into the weekend. But still defending the lows past Wednesday”s open would start to suggest a deeper drop has begun.

What”s Next… (Outlook and opportunities)
A quarter just ended and Friday”s jobs report is nearing. Like the grinding gears metaphor I use in the Chartroom to describe the cusp between timing windows, volatility increases when multiple sponsorships try influencing the same limited pool. OVersold RSIs at Tuesday”s low require a retest, and an overnight probe of fresh lows remains likely. But trending down won”t be credible unless maintained through the open.

If Monday”s action was trying to form a bottom… then it should be obvious soon after Tuesday”s open. The question then would be whether the post-open rally was beginning from a gap above Monday”s highs, or under its lows.

Pattern Points… (Setups and technicals)
Having invalidated Thursday”s trend change signal by retracing it entirely Friday, a retest of Thursday”s low became possible without getting any traction for the effort. Sunday night”s drop into Monday”s open took care of that.

But the attempt to exploit that was too impatient. Not that the reaction down was too shallow — it did stop a couple of points short of the preferable objective around 1953.00-1954.00. That may still be tested. I could still hold.

Otherwise, the recovery”s impatience may have worked itself out through Monday”s ranging. Trending up at all tomorrow would likely begin by gapping up — well above Monday”s 1974.00 high, well on the way to Friday”s 1979.25 high.

What”s Next… (Outlook and opportunities)
Tuesday”s econ calendar has plenty of opportunity to keep volatility alive.

If you”re available at 9:30am ET Saturday… then join us for the Saturday Strategy Session. We”ll start with another tour of the Marketfy resources, review the market”s bigger picture, and then do instant analysis of your stock chart requests. See you there…

Pattern Points… (Setups and technicals)
Is it Yom Kippur already? Friday”s rally wasn”t at all immediate. But it was sudden, and it was substantial. And it retraced the relevant portion of Thursday”s Rosh Hashanah sell-off.

That relevant portion was the break under last Monday”s lows that signaled a trend change. It seemed dubious at the time, but it”s retracement isn”t much more credible. However, it was enough to avoid validating the trend change.

The pattern that launched Friday”s rally wasn”t accumulative, so it”s ~1958.00 low is likely to be retested. The rally developed exclusively during the otherwise low participation environment of Friday afternoon, so its sponsorship wasn”t strong-handed. And persistently overbought 3-minute RSI accompanied the rally, which requires a correction. Any one of these reasons alone, let aloe all combined, make a retracement to some degree likely.

What”s Next… (Outlook and opportunities)
Meanwhile, overbought RSIs at Friday”s 1979.25 high require a retest, presumably up to 1980.50 or 1982.00. Testing it Sunday night might not be attractive to short since one resolution is to quickly retest recent highs. But reversing from its test back into negative territory would be compelling.

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If Wednesday”s rally was only a correction… then is the high”s retest a long way off? Wednesday”s close above Tuesday”s high gained traction. Traction that could be invalidated only by rejecting it at the following open. Which happened Thursday by gapping down back under Wednesday”s high. The burden of proof is on buyers.

Pattern Points… (Setups and technicals)
Tuesday and Wednesday”s lows narrowly avoided closing under the prior Monday”s low. And that avoided reversing the trend down. Monday”s low is the interim low between the last two highs. Closing under it Thursday has signaled a “trend change.” 

The signal must be confirmed by not immediately recovering the trend change signal. That”s a pre-open low at 1968.50, an intraday low at 1969.50, a close at 1976.00 and an intraday high at 1979.00. Closing Friday above any of these levels would buy time to immediately recover the rest at Monday”s open. Otherwise, the trend change is confirmed.

Although the confirmation is different than a breakout (which would require a second consecutive lower close), a confirmed trend change signal would also forecast an eventual third lower closer. Maybe more, but at least one, and necessarily consecutive to the signal and its confirmation.

Confirmation wouldn”t be surprising, but neither would invalidation. Volume accompanying Thursday”s drop was thin due to the holiday. Of course, it”s not much better on Friday.

What”s Next… (Outlook and opportunities)
Also undermining the trend change is Thursday”s close narrowly avoided a hold-short signal. That often resolves by probing fresh lows overnight, and being in recovery mode at the following open. That said, there was nothing bullish about Thursday afternoon”s sideways range, just because it spent so long preventing the decline from extending — it also spent a long time not recovering.

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