Market Wrap

If this leg is going to extend down at all… then it’s going to extend down a lot. This next leg shouldn’t just equate to Friday’s drop, or to Monday’s drop, but to their cumulative drop. And Thursday’s drop didn’t come close.

Pattern points… (Setups and technicals)[pay]
Thursday’s 3:10-3:20 bounce to 1832.50 didn’t recover a single higher prior low or prior high. The market could have closed there and qualified for a hold-short. The close did dip to 1826.00, which was 2 points above the session low.

Did optimism prevent Thursday’s last hour from trending down? Falling that far so quickly, breaking prior lows, and still finding sellers. Wow. That’s scary enough from a contrarian perspective to still have so much attitude to adjust. Scarier, yet, is to consider how much of the last hour’s hesitation was because strong-handed sellers were still being patient. That much more powerful selling yet to act is another side to the same coin.

We’ll know it’s the latter if Friday’s open were to bounce. Gapping up above 1836.00 would leave the gap outstanding at Thursday’s 1826.00 close, but it would also trigger at least a morning bounce. That would be strong-handed patient sellers enticing even more weak-handed optimists to further trap themselves — and refuel the decline.

Thursday’s close was a trend change, which would be confirmed by a second consecutive lower close Friday. The next lower attractions would be 1815.00, 1803.00, and then much lower.

[/pay]What’s Next… (Outlook and opportunities)[pay]
One nagging thing that might nag at us for awhile is that Thursday morning’s drop originated during a no-bias environment. That normally would require recovering at least to 1859.25. The wild, wide overnight ranging makes me willing to dismiss the unfinished business above, but it’s difficult to ignore.[/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 this is a corrective bounce… then the next downleg is going to be a problem. If this isn’t a correction, then what was that downleg?

Pattern points… (Setups and technicals)[pay]
Wednesday’s session never turned negative. Not that it didn’t try, although it certainly didn’t try very hard. Two dips back to Tuesday’s “lower prior highs” and its 1845.75 cash session close never gained traction.

It’s not like the balance of the morning rallied. Not until the bias environment lapsing did buyers exploit that sellers weren’t retaking control. And then they exploited the you-know-what out of it. It’s that Tuesday’s rally shouldn’t have punished a morning rally, before the close.

The morning’s rally may yet retrace, but now it will be after sellers have become even more refueled. S&Ps  are now testing the lower-end of the 1866.75-1874.00 range where last month’s gaps up had gone to die — where the market became conditioned not to trust gaps up.

There’s no assurance of the same resolution. But everyone sure seems conditioned again to buy the dips.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Pricing a large financial IPO after Wednesday’s close at the lower-end of its range (ALLY) hasn’t inhibited Globex action. Economic reports will take on a higher profile Thursday morning that they haven’t had all week. I’ll still be watching for a consequence to the market having rallied Wednesday morning instead of first dipping. [/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 there’s a bigger rally leg coming… then can it begin without dipping, first? Is dipping first assured of recovering to launch a bigger rally? Would rallying first be bearish? Yes, no, and no. But not in that order.*

Pattern points… (Setups and technicals)[pay]
Tuesday morning’s second recovery — not the first one that was invalidated, but the second one that fulfilled the first recovery’s invalidated target after the invalidation leg fulfilled its objective, that one —  Tuesday morning’s second recovery peaked upon testing Monday afternoon’s 1846.00 high.

And, apparently, that was the end of that. Sideways ranging back down to 1842.00 defined the balance of the session. Its upper-end was probed just barely in time to invoke the afternoon bias signal’s grace period. It held. Its lower-end was probed until recovering into the final hour, instead of breaking lower.

The market didn’t just test resistance and then sit still. It tested resistance, and then kept its contents under pressure by continuing to shake. Those contents have yet to be released.

So, breaking higher first could cause quite a mess, presumably from testing 1851.00 or 1853.50. Breaking lower first could also be temporary, assuming 1837.00 holds as support. But having expended so much buying pressure Tuesday only to hover at resistance, a reaction down would be vulnerable to resuming the decline (the big one that began Friday morning).

*So, the correct order of the answers is no, no, and yes.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Quarterly earnings are here, with Alcoa (AA) having announced after Tuesday’s close. That may become more influential in inhibiting afternoon volatility. But AA is not an appropriate scapegoat for that. And Wednesday doesn’t have any high-profile names scheduled.[/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 this pattern is anything like the others it’s tracking… then this week won’t be anything like the bounce that preceded it (which was shallow). Or, like the interim dips that preceded the bounce (which were temporary). .

Pattern points… (Setups and technicals)[pay]
Monday’s last hour differed from Friday’s. Instead of ranging sideways, it ended lower than where it was entered. It also ended under within the bias environment but under the noon hour’s range. So, buyers gained no traction for their effort, but sellers had room for improvement.

Also undermining buyers was the late-afternoon short-squeeze setup. Fresh lows during the bias environment, entering the final hour above the the bias environment’s highs… that could have been substantial. But it was never squeeze-like, and it failed entirely.

The close retraced 61.8% of that late-afternoon rally. And no more. It also didn’t react up from there before the close. Like Friday, all available selling pressure was expended, but vulnerable sellers weren’t exploited. It merited a hold-short setup.

The bigger picture has returned back to prior lows. There was no reason for yet another return visit, other than to extend down. A corrective bounce back into the range, first, is possible, regardless of how much more bearish the overall resolution becomes.

[/pay]What’s Next… (Outlook and opportunities)[pay]
A bounce has a lot of room to run before suggesting the trend might be reversing up. Often the market will take advantage of that opportunity to refuel. Being a correction, it will have to be signaled before becoming any likelier, but not extending down immediately Tuesday would make a corrective bounce likely.[/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 he fired only five shots instead of six… then being this is a .44 Magnum, the most powerful handgun in the world and will blow your head clean off, you’ve gotta ask yourself a question “Do I feel lucky?”

Pattern points… (Setups and technicals)[pay]
Well, do ya, punk? Sorry, not you, personally. That was quite a sell-off Friday. And it ended at 1858.00-1859.00, what would have been the afternoon’s renewed bias-down target — support, which would have been officially in play had the 1867.00 bias-down target been broken more decisively at 1:20.

But, size doesn’t matter. Context is much more important.

And this context stinks. The recent period of rejected gaps up from 1867.00-1874.00 were clearly distribution. Having disgorged itself of that overhead supply, last week’s low was the launching pad for one more higher high. And the template containing those elements warned us that the new high would be brief and rejected firmly.

Many big sell-offs are buying opportunities. Those come at the end of prolonged declines, or after big uplegs that have created a lot of room to absorb selling pressure without damaging the chart. This one follows the distribution described above, closing back under 1867.00-1874.00.

It’s not yet a trend change. But extending Friday’s drop almost any further would likely lead to one. Meanwhile, Friday’s last hour of choppy sideways ranging ended where it was entered. And barely fulfilling a hold-short setup. Gapping up to 1870.00-1871.50 would be likely to fail. But gapping down is likelier.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Join us for this weekend’s Saturday Strategy Session at 9:30am ET. There will be no session for two weeks, so be sure to bring stock requests and general questions.[/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.