Market Wrap

If a top can’t form until retesting the pre-holiday high… then does Tuesday’s test qualify? The gap back to July 3’s close wasn’t filled, so neither was its high retested. But the structure containing both was pierced at Tuesday’s open. And held.

Pattern points… (Setups and technicals)[pay]
Remember, trend extremes into holidays don’t launch reversals. That’s why we’ve been expecting the interim dip to recover — even if only to retest the pre-holiday high.

Unlike closing at a new trend extreme on Fridays, holiday extremes don’t require a subsequent new trend extreme close. Having said that, that’s usually how the retest resolves. And usually that new extreme close is just the pre-holiday trend extending.

Perhaps Tuesday’s shallow retest of the pre-holiday high was a reflection of pessimism. That would be bullish from a contrarian perspective. The hesitation there suggests an eventual recovery through it.

Still, the pre-holiday high has been retested, shallowly or not. Where last week’s drop was expected to recover, now we don’t have that assurance. No doubt, the volatility is exacerbated by expiration. WedEX should clarify the market’s intent at Wednesday’s close. A bullish signal is no likelier than a bearish signal, even if new highs were probed intraday.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Day-two of the Fed Chair’s congressional testimony usually offers predictable plays. Wednesday’s headline-rich environment — headlines that persist well into the afternoon, until GOOG and IBM post-close earnings tamp down — makes the session vulnerable to multiple contradictory reactions. And while a new high isn’t required, its reaction is vulnerable equally to reacting down or extending higher, in either event sharply. [/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 new highs are going to send the market back down again… then new highs should be attacked aggressively. Sunday’s night-long steep rally fit that description. Monday’s sideways ranging did not. At least, not exactly. While a fresh high didn’t extend, neither was it rejected — only retraced back into the range. Buyers gained no traction, but neither did sellers.

Pattern points… (Setups and technicals)[pay]
Sunday night’s extreme sentiment wasn’t a sentiment extreme. That’s always a risk coming into the new week. Usually, though, the sentiment is extended if not rejected. Monday’s session only ranged sideways.

No new sponsorship was attracted to the rally. Nevertheless, the burden of proof remains on sellers. A hold short wasn’t signaled, although an overnight or opening pullback might be needed to kick start another upleg. A kick start isn’t necessary, and is only a possibility. It isn’t even as likely as rallying straight through the open.

Remember that retesting the high this week would be most likely on Tuesday, and then most likely to close down Wednesday. Remember also that Yellen’s two-day congressional testimony begins Tuesday, along with more high-profile earnings — Monday’s narrow range should become a distant memory.

[/pay]What’s Next… (Outlook and opportunities)[pay]
The closer this rally flies to the sun, the more vulnerable it becomes to attracting sellers. That also goes for moving away from the sun, dropping further below the prior high without first testing it. A fresh high remains likely, but Monday not improving on the open’s extreme sentiment is a bit too complacent for comfort at these levels.[/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 not for dipping before Friday’s open… then would the cash session have trended down? The morning delayed recovering until the afternoon, but sellers tried to get things going. Did they fail because so much sponsorship had been satisfied already?

Pattern points… (Setups and technicals)[pay]
Friday was simple — at least, in staking out its objective. Holding a test of the bias-down signal put into play a test of the bias-up signal. The morning’s attempts to reject it all failed, and the afternoon’s rally pierced the objective by 3 ticks.

The morning’s “ineffectual pessimism” at support was matched by the afternoon’s ineffectual pessimism at resistance. Buyers were very patient. Ultimately they were rewarded, so their buying pressure was satisfied. They gained no traction for their effort, but left no impediment to attracing new sponsorship that extends higher Monday without delay.

Thursday’s intraday rally from gapping down was the product of ineffectual pessimism. There’s no reason why ineffectual pessimism on Monday wouldn’t fail, too. The best way for sellers to regain control is to relinquish it first — let a sudden and steep rally Monday produce new highs by Tuesday, in time for the WedEX indicator to close back under relevant support.

Trading down immediately Monday could still be credible for extending the decline. Any delay in trending down Monday is likely to resume the rally.

[/pay]What’s Next… (Outlook and opportunities)[pay]
After two weeks without, this weekend will have a Saturday Strategy Session. Follow this link (or find it in the blog’s sidebar) to be there at 9:30am ET. [/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 had closed any higher… then buyers would have started gaining traction for their efforts. But, like Tuesday and Wednesday, they were rewarded sufficiently intraday. The door is open to sellers, so look out below if buyers don’t attract new sponsorship quickly.

Pattern points… (Setups and technicals)[pay]
Exiting Thursday afternoon’s bias environment above the noon hour’s high could have been bullish. But the final hour’s entry was not above the bias environment’s high. In fact, it was back under the bias environment’s low. That negated the bias environment’s potentially bullish exit.

Buyers gained no traction for their efforts, and neither did sellers.

The burden of proof was on sellers, since they were the aggressors. Closing back under 1953.25 — at least under 1955.75-1956.75 — would have started gaining downside traction. But both were recovered.

Buyers failed to recover out of negative territory, and from recovering 1958.50-1961.75. The cash session close equated to 1958.50 — recovering 1961.75 through Friday’s open still could serve by proxy. Either the recovery is resuming then, or else a dip could quickly become a much bigger sell-off into the weekend.

[/pay]What’s Next… (Outlook and opportunities)[pay]
This being a Friday, the morning’s bias tends to persist through the noon hour. This being a multi-session downtrend, a fresh low on Friday has potential to extend down sharply. Even gapping up or trending higher in the morning would be vulnerable to reversing down unless and until a relevant resistance were recovered.[/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 the rally wanted to entrench itself… then it should have allowed Wednesday to retest Tuesday’s low. Already expending energy to barely retrace Tuesday’s drop may be missing that optimism just when it is needed most.

Pattern points… (Setups and technicals)[pay]
The FOMC Minutes knee-jerk reaction down to 1950.50 was recovered back up to and through its 1964.00 origin. That recovery was still supported at the close by the morning’s 1965.25 highs. That’s actually still testing the morning’s highs, despite closing higher.

Meanwhile, the final hour wasn’t entered above the noon hour’s high. And the 3:10-3:20 timing window failed to maintain a fresh high. Buyers gained no traction for their efforts, i.e. they were already rewarded for their efforts, and attracted no new sponsorship.

The door remains open to probing under Wednesday’s low to 1956.00-1957.00 or lower, if not also under Tuesday’s ~1953.25 low. Gapping down isn’t necessary, just exiting Thursday’s open in decline — preferably under 1962.50.Extending higher without a detour must begin by gapping up above Wednesday’s 1968.25 high. That’s 2 points above the cash session close, and 1 point above the futures close. Follow-through might not hesitate until retesting last Thursday’s 1978.00 high up to 1981.25-1982.00.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Buyers aren’t gaining traction for their intraday efforts, so any resistance test is going to be vulnerable to reversing down. The next higher is 1971.25, and any higher would essentially marginalize sellers. Otherwise, dipping Thursday could form a more substantial base to launch a new rally leg.[/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.