Market Wrap

If expiration encouraged the week’s sell-off… then guess what expiration lapsing will encourage. Hint: It’s not a trick question.

Pattern points… (Setups and technicals)[pay]
Friday’s pre-open surge touched the morning’s 1871.25 bias-up signal. That was too little and too late to extend  after Thursday afternoon’s buyers had failed to gain traction. Dropping back down toward Thursday’s 1859.00 low then isn’t surprising. Not probing it is.

If fresh lows were avoided due to expiration influence, then that influence should cut both ways, printing fresh lows by Monday afternoon — Tuesday morning at the latest. That would be very helpful confirmation of the entire drop from last week’s new high having been influenced by expiration.

Isolating the selling pressure due to expiration would be bullish. Probing under 1859.00 wouldn’t necessarily be expected to recover immediately, but the premise would be that it was the decline’s later stage, not a new downleg.

Leaving unfinished business below Monday to extend higher would be also be likely to extend higher at a steep pace. The probe of fresh highs would be unlikely to last long before being rejected more substantially. Either way, the high’s retest remains likely, with the path there determining the next leg from there.

[/pay]What’s Next… (Outlook and opportunities)[pay]
The price action described above forms a “failed Ascending Triangle” pattern, which is very bearish upon completion. We’ll look at that more closely in this weekend’s Saturday Strategy Session, starting at 9:30am ET linked from the blog’s sidebar.[/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 drop since Tuesday’s high is expiration related… then we haven’t seen the half of it. Actually, we have seen half of it. The next half should either recover entirely, or else essentially double the drop so far.

Pattern points… (Setups and technicals)[pay]
Thursday morning’s drop tested uptrending support that originated two weeks ago. I showed it on a chart that accompanied the morning’s post-open blog post. The trendline held through the close, but it was mangled enough to expect its eventual break.

Breaking under the trendline sooner rather than later would target a test of the trendline’s prior touch at 1854.50. Its test could easily launch a leg to new highs targeting 1907.00. Letting a small bounce play out first would make the retest of 1854.50 less likely to hold.

It might seem from the examples that a test of 1854.50 is inevitable. Well, yes. The only question is when and from what level.

Since buyers gained no traction for their efforts Thursday afternoon, Friday’s open must gap up to suggest this downleg is done. Just recovering 1871.25  would be a start. Preferably at least 1875.00. Otherwise, the decline would likely resume if bouncing too late, or too little, or not maintaining a bounce through the open.

[/pay]What’s Next… (Outlook and opportunities)[pay]
The late bearish WedEX could invert by gapping up sufficiently. Rejecting a deep enough dip early enough could also rally, but the setup is much less likely to develop on expiration. Being Friday, the morning’s bias is likely to persist through the noon hour. And being expiration, trending through the opening 15 minutes of volatility is likely to persist through the close. [/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 afternoon’s drop was related to expiration… then so was the prior six timing windows ranging narrowly. Buyers weren’t enthusiastic about probing fresh highs, but they defended against sellers retaking control.

Pattern points… (Setups and technicals)[pay]
WedEX nearly triggered, the parameters in yesterday’s Trading Plan defined the 1885.00 prior highs as a relevant level. Despite ending yesterday at 1894.00 and bouncing overnight to 1897.25, the afternoon’s drop tested 1885.00 down to 1882.25.

Holding the test of 1885.00 or breaking it would have triggered either passively bullish or actively bearish, respectively. But it didn’t break lower, nor did it hold. It was still being overlapped at the close.

Actually, testing 1885.00 from above places a little greater burden of proof on sellers. Regardless, a WedEX signal is still possible Thursday, if its open were far enough above or below 1885.00.

[/pay]What’s Next… (Outlook and opportunities)[pay]
It’s difficult to envision probing fresh highs. But that doesn’t require triggering a bullish WedEX, which would control the Friday afternoon to Monday morning time frame. [/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 Tuesday’s new high close is confirmed Wednesday… then this rally could have bought itself time into next week. Not confirming it isn’t necessarily bearish, but the door below would open.

Pattern points… (Setups and technicals)[pay]
It’s on you, WedEX. That is Wednesday’s Expiration indicator, which will have a chance to trigger at Wednesday’s close. Usually, there’s little point to discussing it before Wednesday afternoon, with so many variables yet to qualify. But so many already have.

Closing Wednesday above Tuesday’s 1898.50 high would signal that expiration is likely to trend up into and out of the weekend, Friday afternoon and Monday morning. Closing Wednesday under 1885.00 prior highs would be bearish — unless 1878.50‘s “lower prior high” were tested intraday.

Tuesday afternoon’s narrow ranging is a concern. When the morning bias environment began lapsing back at the open’s 1892.75 low, all volatility was suddenly sapped from the pattern. A narrow range resisted by 1895.00 developed through the close, absorbing a last-hour attempt to break lower. Not trending at Wednesday’s open — whether from a flat open, or from gapping — could persist well into the afternoon.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Pre-open and post-open high-profile econ reports Wednesday have a chance to shake things up. Get ready to get the dry cleaning if neither one does. [/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 new high close were an intraday high… then closing higher on Tuesday could have confirmed a breakout. Being one day shy of the WedEX, confirmation would buy this rally at least another week of life — even if WedEX weren’t bullish. So it’s interesting that Monday’s new high stopped just short of such a potentially bullish setup.

Pattern points… (Setups and technicals)[pay]
That near miss for a new high close is relative to April 4’s prior high. Its retest was the reward for buyers that had absorbed the interim trend reversal signal, the consequence for those sellers not attracting new sponsorship beyond confirmation. That objective is now fulfilled.

Compared to the past two weeks, Monday’s rally did produce a breakout. A second consecutive higher close Tuesday is the premise, until disproved intraday. Having tested April’s prior high simultaneously, that figures into the calculus. But no reversal signal is in-play.

In fact, hold-long didn’t trigger Monday. But only because the indicator shows no greater likelihood for gapping up Tuesday. Follow-through from the morning’s surge showed no signs of weakness, only hesitation. And again, sellers showed no signs of retaking control.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Tuesday’s session is breakout+1 relative to the recent trading range. It is simultaneously WedEX-1. The influences need not be contrary to make volatility expand considerably. Be aware that Monday’s upward momentum doesn’t require initial trending to be any more reliable for extending.[/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.