Market Wrap

If Friday’s Employment Situation report isn’t a surprise… then the market will be disappointed. Trending shallowly into Wednesday’s confirmation, and dipping most of Thursday, suggests the market is defensive — albeit while sitting at new highs. Cautiously optimistic. Yeah, what could surprise that posture.

Pattern points… (Setups and technicals)[pay]
Thursday’s dip into negative territory was recovered to essentially unchanged. Clearly, that’s where the market wants to greet Friday’s Employment Situation report. That doesn’t make one reaction likelier than another. But it is interesting for what was avoided.

For example, dipping intraday created room to absorb initial buying pressure. One path down would have been to absorb an initially favorable knee-jerk reaction up. But that dip is already recovered.

A new high close was just a handful of points higher, which would have fulfilled the outstanding objective of Tuesday’s confirmed breakout. Reacting down could have left no unfinished business above, but optimism remains in-check.

Thursday’s low did leave outstanding an oversold RSI at 1875.50. But there is no time schedule required for its eventual retest. A knee-jerk reaction down to it would more likely recover to launch a rally into the afternoon, instead of breaking lower. But even a knee-jerk reaction up wouldn’t be assured of trending up into the close.

[/pay]What’s Next… (Outlook and opportunities)[pay]
There usually isn’t relevant price action the night before Employment Situation reports, and no preliminary position is suggested — especially with the close being at unchanged.[/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 market planned to top this week… then it probably missed that boat Wednesday. A second consecutive higher close confirmed Tuesday’s breakout, requiring eventually for there to be at least third. An interim dip is possible, but only a dip.

Pattern points… (Setups and technicals)[pay]
Unless, of course, Tuesday’s breakout close wasn’t. But reasons to suspect its relevance should be rendered moot by Wednesday’s higher close. And Wednesday’s session wasn’t suspicious, being the past week’s most bullish performance. Despite maintaining gaps up, none of the three prior sessions trended higher in the morning, and higher still in the afternoon.

Ironically, Wednesday was the past week’s first session not to gap up. It didn’t have to.

That hesitation suggests keeping alert for a downdraft before Friday’s report, into it, or even through it. But rejecting Wednesday’s new high close by immediately gapping down would create unfinished business above that needs to be filled. Already fulfilling the minimum required third higher close on Thursday might be blind-sided by Friday’s report, but that’s kind of close to be an actual top.

[/pay]What’s Next… (Outlook and opportunities)[pay]
The afternoon before monthly Employment Situation reports tends not to trend, perhaps from anxiousness. By the same token, Thursday morning can be extra volatile with last-minute posturing.[/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 a new high close was needed to complete the top… then Tuesday’s new high close fulfills it. Barely. There was an overnight high that is yet untested. Its outstanding attraction could be rejected before the close. Until then, it’s an attraction leaves potential for confirming high close.

Pattern points… (Setups and technicals)[pay]
The prior intraday high 2-1/2 weeks ago was at 1877.25. It was touched Tuesday morning, and probed that afternoon. The 1870.00-1870.25 prior high closes had surrounded the high’s session, and they were clearly exceeded. An interim bounce’s peak was exceeded, too.

Now comes the question of confirming, or not. A second consecutive higher close Wednesday would require at least a third. Whether or not produced consecutively on Thursday, confirming Tuesday’s breakout would make this unlikely to be a top.

After confirming, reversing back down Thursday and extending down further on Friday’s Employment Situation report would only refuel buyers — which the outstanding requirement for a higher close would unleash. Extending higher Thursday and then reacting down Friday might be productive, but the timing would be unlikely to reverse the trend down.

Rather, the optimal topping pattern would probe new highs Wednesday and close back under a relevant low — like Tuesday’s 1869.25 bottom. Actually, gapping down first before temporarily recovering would be optimal. Regardless, volatility remains very much alive.

[/pay]What’s Next… (Outlook and opportunities)[pay]
This week ends with the Employment Situation report. So Wednesday brings the highest profile advance look, in the pre-open ADP report. Its data lets economists fine-tune their expectations, and its reaction let us fine-tune the market’s disposition before the 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 the market wanted gaps up to be sold… then it didn’t do enough conditioning last week. Friday and Monday’s gaps up held intraday as support. Perhaps distribution has finally turned the corner — not to start becoming accumulation, but to waiting for one more fresh high before really dropping the hammer.

Pattern points… (Setups and technicals)[pay]
Monday’s opening gap up wasn’t rejected. Like Friday’s before it, that’s two consecutive gaps up not to be reversed into negative territory. Friday’s was retraced back to the morning’s low, still holding well into positive territory. Monday’s didn’t extend, also still holding well into positive territory. But neither gap up was rejected.

That’s more important for Monday since it tested the 1866.75-1874.00 range that previously killed gaps up. Gapping up Tuesday to 1874.00 would still be vulnerable to rejection, although Monday’s ~1866.75 highs would be strong support against turning negative.

Unfinished business above was left outstanding at Monday afternoon’s 1869.75 bias-up target. There were enough opportunities to reject it back under 1864.25 that remaining intact anyway makes its test even likelier.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Dipping first had better hold Friday morning’s “lower prior highs” as support 1858.00-1859.00. Recovering back above 1861.00 would signal the dip had reversed back up. Recovering overnight back above 1861.00 would signal the market was reversing back up aggressively. Just extending above 1867.25 would be likely to resume the rally.[/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 it weren’t Friday… then would the open’s gap up have been retraced back into negative territory, like so many others before it? Friday’s opening print extended aggressively — immediately and substantially. It was retraced back down to the opening print, which held its test, and positive territory. .

Pattern points… (Setups and technicals)[pay]
Something seems different. Maybe it’s just the day of the week. Fridays are difficult to generate counter-trend sponsorship. So when the morning’s rally got ahead of itself, drifting back down to its origin only constituted noise. There was no influx of sellers exploiting an unsustainable gap up.

Whatever selling was expended Friday afternoon gained no traction for its effort. And the burden of proof IS on sellers. Had the afternoon drop not probed under the morning’s low, then Monday would be forced to gap up for a lower low to be avoided. But the rally is free to resume in any fashion.

Gapping up would be preferable for the bigger picture assumption of this leg being blow-offish. (Or, blowoff-ish. Not blow-of-fish.)

Just sliding at Monday’s open would still be likely to recover from the 1840.00-1844.00 area, probably from its upper-end. Resuming the rally Monday would otherwise require gapping down sharply.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Join us for this weekend’s Saturday Strategy Session 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.