Market Wrap

If not for Putin’s maneuvering… then Tuesday’s plunge might have been much deeper. Huh? True, the news was the catalyst for Tuesday afternoon’s dive. But that originated during the no-bias environment. Sellers during that timing window are weak hands. And now they’re trapped.

Pattern points… (Setups and technicals)[pay]
Fresh lows were so unlikely on Tuesday, that it required the assistance of the Russian army. The decline was likely to resume at some point, and still is. But not with any urgency — not after gapping down and ranging sideways (widely, but sideways) all morning.

No other bounce was required before extending down, and the gap back to Monday’s close didn’t require being filled. Only a little more time was needed before a new downleg could begin. Only a little more time would have produced enough disappointment in the latest dip not recovering as usual.

Tuesday afternoon’s plunge restarted the clock. The latest low is only a couple of hours old, so it’s premature to yet become disappointed in it not yet recovering. It was a knee-jerk reaction to news, the product of weak hands whose impatience would have caused a bounce to fail — now having sold, their impatience can only instigate a rally.

So, sellers can be productive, but they remain vulnerable to recovery.

There is also the issue of “no-bias trending.” Tuesday afternoon’s 1923.00 bias-down signal had held as support through 1:20 to avoid triggering. A bounce was underway before the headline hit. Although the plunge never recovered the 1917.75 bias-down target, 1923.00 is still the likeliest attraction so long as another bias-down doesn’t trigger.

[/pay]What’s Next… (Outlook and opportunities)[pay]
One other element is the Thu-Fri trend change signal. It requires at least one future lower close. Tuesday was a new low close, but the close was above prior lows. It does not fulfill the trend change signal’s minimum requirement. The right/wrong headline can still resume the decline in bigger ways than we’ve yet seen. But the current range is meanwhile vulnerable to being retraced… Be sure to watch Tuesday’s Market Wrap for a visual discussion of the above concept. Don’t hesitate to ask questions in this post’s comments section on the blog. [/pay]

Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.

If Monday’s rally was sponsored by weak hands… then it’s more vulnerable to reversing down than to extending higher. And since Monday afternoon’s buyers gained traction, reversing down immediately requires gapping down substantially. So, not gapping down Tuesday…

Pattern points… (Setups and technicals)[pay]
Monday morning’s 1914.00 target was met within 3 ticks, which was close enough to neutralize it. That doesn’t make the near miss any less optimistic. The steep reversal up was only more so, as was its extension through resistance during the no-bias environment. The origins of the optimism reflect weak-handed sponsorship — potentially / eventually bearish from a contrarian perspective.

None of which prevents extending higher. All of which warns that reversing down will be done aggressively.

Monday afternoon’s bias environment was exited above the noon hour’s high, and the final hour was entered higher. Buyers did gain traction, so reversing down immediately must be done by gapping down. Not indicating a gap down Tuesday would all but require extending Monday’s rally — weak-handed sponsorship, strong, sellers would be marginalized through Tuesday morning’s bias environment.

At least a retest of Friday’s lows remains likely one way or another, if not also resuming the decline. Friday confirmed Thursday’s trend change, requiring a third lower close, and giving buyers the freedom to be refueled. The question is whether Monday’s bounce fully refueled them.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Tuesday’s econ calendar isn’t lacking potential catalysts, before attention turns to Thursday’s BOE and ECB meetings. [/pay]

Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.

If Friday’s session had not pierced positive territory… then closing in negative territory might not have been bearish.

Pattern points… (Setups and technicals)[pay]
Candlestick chartists recognize today’s pattern as often appearing at the end of a trend. Gapping down, ranging widely, and yet closing back at the open’s gap. They’re right — but much less so on Fridays. The immobility reflected by the pattern is often jarred loose by gapping in the trend’s direction on Monday.

Many other bearish elements contributed to a hold-short setup. Friday’s intraday retest of the overnight low didn’t react up to a fresh high, so instead of being accumulative, it just chipped away further at support. There’s also the timing of Friday morning’s downleg, coming after the pre-open and post-open rally, which suggests that sellers were strong hands.

Also, although the afternoon didn’t reflect sellers gaining traction, the close was under the morning’s low, which suggests the trend remains down. Closing at new trend lows on a Friday often resolve down Monday. But the extreme sentiment of gapping down after the weekend is often a sentiment extreme, so gapping down need not extend down. Not gapping down at all Monday wouldn’t change the trend change that was confirmed Friday, requring an eventual third lower close.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Join us for the Saturday Strategy Session at 9:30am ET. We’ll discuss the broader market, and analyze any stocks of interest to you. [/pay]

Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.

If Thursday’s drop were to extend Friday… then it could be awhile before new highs are targeted again.

Pattern points… (Setups and technicals)[pay]
We’ve been talking about 1931.75 for awhile, more like mentioning it in passing. It would be the objective of a downleg that might begin prior to retest last Thursday’s highs. It was triggered by not holding 1960.25 through a relevant timing window Wednesday morning. Thursday would have been the next opportunity to confirm it was in-play — but it was already tested.

And its test included the room for noise around it down to 1926.75. That’s eerily similar to testing  both the rally’s 1982.00 target and its room for noise up to 1984.75.

But 1982.00‘s test was expected to be part of a top, albeit leaving outstanding the potential for a retest. Meanwhile, 1931.75 isn’t necessarily part of a bottom. Failing to hold its test has put into play 1911.00 and 1903.00. Thursday’s drop already tested 1923.50.

Whatever happens overnight, Friday morning’s Employment Situation report should be more influential. Triggering a gap up above 1931.75 would help to reject the close below it. Gapping up above Thursday afternoon’s 1939.00 high could form a “session-long rally.”

At the very least, bottoming requires a positive close Friday. Thursday’s close was under the two-week old 1953.25 prior low close, signaling a trend change. A second consecutive lower close would confirm at least a third lower close to come. Officially, the trend change is confirmed simply by not immediately recovering the prior low.[/pay]What’s Next… (Outlook and opportunities)[pay]
The two-week old prior low was produced by a bearish WedEX accelerating Friday’s selling pressure into Thursday. That excessive pessimism created a rally Friday. Perhaps that instance recovered because of unfinished business above back to July 3’s high. Could Thursday’s sellers have accelerated selling pressure ahead of the Employment Situation report? [/pay]

Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.

If Wednesday’s FOMC statement didn’t kill the rally… then why should Friday’s Employment Report be a concern? Discounting this sentiment Thursday wouldn’t be surprising — regardless of the actual reaction.

Pattern points… (Setups and technicals)[pay]
Wednesday’s opening gap up was similar to Monday’s, in creating extra room for selling pressure before it could damage the chart — at least, to limit the damage — before sellers were expended. The two open’s weren’t consecutive, so they had the freedom to resolve similarly.

And they did. Monday’s tactic did recover much more ground than Wednesday. But Wednesday recovered into positive territory.

Buyers didn’t gain traction either day, and neither did sellers. So, avoiding a fresh low all but requires gapping up Thursday. Gapping up enough — above the afternoon bias environment’s 1971.50 high — would form a session-long rally setup.

Any plausible rally effort should be rewarded by retesting last week’s highs — Thursday would be entirely possible. Meanwhile, breaking under 1958.00 through any relevant timing window would be a final straw, the last line of defense before a deeper detour to 1931.75 gets underway in earnest.

[/pay]What’s Next… (Outlook and opportunities)[pay]
One more day before the monthly Employment Situation report. More tapering on Wednesday didn’t kill the market, so Friday’s numbers probably won’t be bearish. At least, not from current levels. Greeting the report after printing fresh highs Thursday could be another story.[/pay]

Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.