Market Wrap

If not for the afternoon Fed speaker’s QE warning… then Tuesday could have produced the blowout rally that the open’s pattern had promised. Is that opportunity gone, or simply delayed?

Pattern points… (Setups and technicals)[pay]
Gapping up above the prior afternoon’s high, after having trended down into its close, can form a “session-long rally” setup. That is especially when the prior afternoon’s high has printed during the bias environment. Monday’s closing action trended down, and Tuesday’s open gapped up Monday afternoon’s high. Session-long rally?

Almost. Monday afternoon’s high printed while the bias environment was lapsing, which discounted how much selling pressure that Tuesday’s open rejected. So, no session-long rally?

Tuesday’s price action actually did behave appropriately for the setup. Only one timing window was countertrend. And price trended up into the close — well, until the last 10 minutes. At least no prior low was broken.

Why should this discussion of Monday and Tuesday be important to anticipating Wednesday? Because the session-long rally setup often extends the following morning. Having held positive territory throughout Tuesday, and having stopped pessimistically short by only 2 ticks from touching the morning’s high, extending higher Wednesday morning is still likely.

[/pay]What’s Next… (Outlook and opportunities)[pay]
With extending higher being likely, not extending higher immediately would make the recovery suspicious. There is a scenario that would allow gapping down to recover intraday for only a temporary probe of fresh highs. Both scenarios suggest that Tuesday’s ranging around the morning’s 1831.25 bias-up target was equilibrium, so any trending would be vulnerable to reversing. [/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 final hour had been entered any higher… then a significant rally would have been underway. Not that sellers damaged the chart otherwise. But delaying fresh lows much past Tuesday’s open could mean the attraction to new highs is stronger.

Pattern points… (Setups and technicals)[pay]
Monday’s drop from gapping up left no unfinished business above. Not ultimately. Overbought RSIs at Friday’s 1832.00 high were neutralized by the open’s test of 1832.75. Monday morning’s 1823.25 bias-down signal was retested after being probed down to 1817.25.

Monday’s drop almost created unfinished business above. Entering the final hour above the bias environment’s 1824.75 high would have targeted fresh session highs above 1832.75. But 1824.75  was only being overlapped.

Reacting down to 1820.00 broke key levels too late to signal fresh lows in-play. Fresh lows are likely so long as Tuesday’s open doesn’t bounce above Monday afternoon’s 1826.00 high. And fresh lows could extend through 1816.00 to 1803.00. But recovering 1826.00 through Tuesday’s open would delay fresh lows until last week’s high were attacked or probed.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Oversold RSIs left outstanding at Monday’s low don’t require being retested within any time frame. But they’re likely to be retested early Tuesday in place of gapping up. Testing them overnight before gapping up Tuesday would only reinforce the rally’s potential.[/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 was the start of something bigger… then shouldn’t Friday have extended it? Not necessarily. Trapping longs with failed bounces can be bearish, too. Perhaps more so. Even in the most bearish scenario, the more timely question may be whether Friday’s bounces trapped enough longs to extend down yet.

Pattern points… (Setups and technicals)[pay]
Friday afternoon’s 6-point surge above 1826.00 was apparently in reaction to comments by Bernanke. Its complete retracement to close back under 1826.00 confirms the surge’s sponsorship was weak-handed. But the surge’s 1832.00 peak took RSIs overbought, so it was sponsored by the strongest hands available.

Overbought RSIs were lower overbought highs, but still overbought. Retesting 1832.00 without delay would likely hold, and reverse down more substantially. Extending down without delay would not be immune from resuming Thursday morning’s decline — through 1816.00 to 1803.00 and perhaps 1797.00.

Retesting 1832.00 without reversing down could extend back to Tuesday’s 1843.00-1846.50 highs. The resolution from there would be bearish, too. There just hasn’t been any accumulation at these levels, and optimism is still excessive.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Don’t forget that there is NO strategy session this weekend. So, the Market Wrap spent more time discussing the bigger picture. Stock requests or other questions can be posed Monday. [/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 “as goes January so goes the year” were relevant… then this year could offer the best returns yet. Huh? That sounds weird when 2014’s first session trended down throughout. But it left outstanding a gap back to Tuesday’s futures close that is 20 points above Thursday’s close. The gap doesn’t require being filled, but it would be an attraction if Thursday’s downleg were to lose its traction. And that could occupy enough of January for the month to be positive. Meanwhile, such generalities don’t offer any real world application. They’re already only borderline likelihoods, so an actual cause and effect correlation would be bearish this year. That’s because recent years have almost outperformed the historical range, making a massive underperformance increasingly likely.

Pattern points… (Setups and technicals)[pay]
Two consecutive positive divergences were ignored Thursday. Despite their fresh lows reacting up sharply, their prior highs weren’t touched. Ignoring consecutive positive divergences, instead of reacting up to a prior high high, can reflect much bigger selling pressure coming down the pipeline.

A vacuum is created when that extra selling pressure fails to appear. An oversold bounce fills this vacuum — not quite to the same degree as extending the drop, but still pretty big. Regardless, Thursday’s close did not resolve the condition.

The second setup’s 1828.00 prior high was probed during the 3:10-3:20 timing window. It was probed again during the position-squaring window. It was not recovered at the close. That’s not in itself bearish, but it is a missed opportunity to be bullish. Rejecting the bounce and closing back under 1825.25 would have been bearish — but 1825.25 was never probed, so not closing under it doesn’t represent a missed opportunity to be bearish.

Probing lower lows through every timing window including the afternoon bias environment had put the burden of proof on buyers. They failed, and not for lack of trying. A credible bounce must compensate for its delay by gapping up Friday morning. Otherwise, the trend remains down, likely to visit the 1816.00 area, where a bigger signal would trigger either way.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Normally, the month’s first Friday would release the Employment Situation report. Not this month. There is no way to know, but it would be interesting to learn that Thursday’s decline was exacerbated by defensive posturing ahead of the report. In any case, unusual timing of high-profile influential events does impact price action.[/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 session had been abbreviated… then would the close still have recovered to the morning’s high, let alone above it? I tend to think so, that the market does what it intends to do, adjusting its own timing as needed. The early rally would have been earlier, along with its reaction and recovery. Perhaps the bigger question is whether the regular-length session should have been more productive.

Pattern points… (Setups and technicals)[pay]
Closing above 1836.00 put into play 1856.50, with potential for extending to 1869.00. Closing at 1836.00 for three consecutive sessions made the breakout likely to reach its target much more aggressively — compensating for delaying its start.

That’s if the breakout is valid. It still must be confirmed by a second consecutive higher close Thursday. Not above the post-close 1846.50 high — just above its 1842.75 cash session close. But that cash session close is problematic since it was not above the morning’s high, meaning that buyers gained no traction for the effort, regardless of the post-close extension.

Extending higher is not at all assured, and extending down already into Thursday’s open would be entirely credible for rejecting Tuesday’s breakout. Extending down already at Thursday’s open might be the only credible rejection of Tuesday’s breakout. So, NOT already extending down at Thursday’s open may be its own confirmation of Tuesday’s breakout.

Whichever way Thursday goes, the new year is likely to start with either an upside bang, or with a downside dud.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Please have a safe and Happy New Year’s! Globex reopens Thursday morning at 6:00am 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.