Market Wrap

If Friday’s new high close were rejected immediately Mnoday… then it would leave “unfinished business above.” And that would be odd as the seasonal holiday bullishness begins.

Pattern points… (Setups and technicals)[pay]
Overnight action had eked out higher highs, but Friday’s open qualified as the obvious bullish behavior. It wasn’t just the early productivity, but what that implied. Trending up through the first 15 minutes on expiration tends to define the entire session. And Friday’s first 15 minutes trended up.

No prior low was even attacked intraday as its rally extended higher. The last half-hour did dip to a fresh afternoon low, after trending down during the half-hour before that. The dip’s reaction did recover back above prior lows. Other than producing a momentary fresh high, Friday afternoon’s bullish WedEX did prevent sellers from gaining any traction. But that must be followed Monday morning by a strong rally.

Meanwhile, expirations and Fridays aren’t known for printing a trend’s final extreme. An eventual higher close is likely. Closing higher Monday would serve to confirm Friday’s breakout, requiring yet another eventual higher close.

None of which prevents gapping down and trending down Monday. No matter how bullish the WedEX influence, it applies to post-open action, which could follow gapping down sharply. The bullish WedEX suggests trending up, and sharply to compensate for Friday afternoon’s ranging, but Friday afternoon’s ranging raises some suspicions. Nevertheless, Monday morning’s likeliest scenario is to trend to new highs.

[/pay]What’s Next… (Outlook and opportunities)[pay]
This weekend’s Saturday Strategy Session will be the year’s last. We’ll update the bigger picture during the last two weeks as needed, but probably not with the extended conversation. We’ll also cover January Effect candidates, and do instant analysis of your stock picks. Be there at 9:30am ET, its link can be found in 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 Thursday’s market wanted to confirm Wednesday’s “breakout”… then it had ample opportunity to do so. It didn’t. That doesn’t prevent probing new highs. But it makes extending to new highs difficult.

Pattern points… (Setups and technicals)[pay]
Wednesday’s surge was substantial, to put it mildly. That doesn’t rob it of the potential for being a breakout. Regardless of its degree, even the shallowest higher close Thursday would have confirmed the breakout had attracted strong-handed sponsorship. Then, regardless of any immediate reaction down, at least one more higher close would have been required.

Thursday did not close higher. Wednesday’s breakout was not confirmed.

It wasn’t for lack of trying. Despite gapping down and extending 10 points under Wednesday’s 1805.00 close, the afternoon bias environment’s high narrowed the deficit to only 3 ticks. The last hour’s entry narrowed it to 2 ticks. The position-squaring window actually touched 1805.00.

Each attack on 1805.00 reacted back down to at least 1801.50. Momentum did not reverse down.

Friday’s expiration may gap up or down or open flat. Thursday’s action did not rule out any opening scenario. Thursday afternoon’s 1807.75 bias-up target was left outstanding as “unfinished business above. And the bullish WedEX suggests that Friday afternoon will be biased upward — but not from any particular level, whether in positive or negative territory, or flat.

P.S. The SPX/Dow/NDX relativities are starting to diverge again. That preceded the last top, but was nevertheless predictive of the rally peaking. It’s not a sell signal, but a warning. I described it graphically at the end of Thursday’s Market Wrap recording.

[/pay]What’s Next… (Outlook and opportunities)[pay]
No hold-short or hold-long could be contemplated at Thursday’s close. And expiration’s wild card — quadruple witch, no less — only increases the post-close uncertainty. Being a Friday, the morning’s bias signal should persist through the noon hour. And being expiration, trending through the opening 15 minutes tends to persist through the day. [/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 Fed had begun tapering long ago… then just imagine how much higher the market would be, and how many trillions could have been saved. Seriously, though. If and when the eventual bear market comes — and now it can come — Wednesday’s reaction has left the Fed blameless, as it can point to how well the market reacted to news of it tapering.

Pattern points… (Setups and technicals)[pay]
The FOMC announcement’s knee-jerk reaction probed fresh lows including “lower prior highs” at 1762.00. Wednesday’s 1765.50 pre-FOMC low already had probed low enough to qualify as the low’s retest. The lower low was irrelevant.

So long as the lows weren’t broken through the close, WedEX had already held a test of multi-session lows for it to trigger “passively bullish.” But, wait, there’s more…

The reaction up tested Monday’s 1786.25 high. That was a corrective bounce. We established that when Monday afternoon’s bounce peaked where it did. Anyway, closing above it Wednesday triggered an “actively bullish” WedEX.

An upward bias into and out of expiration seems very likely at this point. But then came another point. The recovery above the correction’s 1786.25 high extended. And extended. Another older prior high was tested at 1805.00.

The older high’s test was still in process at Wednesday’s close. It was neither recovered nor rejected. Unless a higher probe of it were rejected through Thursday’s open to trigger a “passively bearish” WedEX, the bullish signal remains intact. Actually, gapping down back under 1786.25 would reject its recovery. Any shallower opening dip would be bullish.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Gapping down to 1799.00 or 1795.00 would be more vulnerable to trending down through the morning, or to backing-and-filling. Probing higher overnight won’t create a “new Globex trend extreme” without there being complexity to the effort, so that wouldn’t necessarily prevent a deeper pullback intraday.[/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 FOMC tapers, or doesn’t… then a big afternoon is likely. That’s obvious. But a big morning is not likely. That should be obvious, too, but don’t lose sight of that possible limitation when in a position that relies upon trending further.

Pattern points… (Setups and technicals)[pay]
Monday’s late sell signals under 1781.00 would have been satisfied easily fulfilled that afternoon by probing Friday’s 1773.50-1775.00 “lower prior highs”. Actually dipping to 1770.25 compensated for the delay.

Recovering back above Monday’s 1777.50 low through any relevant timing window would have easily targeted a probe above Monday’s 1786.25 high. Only chipping away at the resistance of Monday’s 1777.50 “higher prior lows” has created a delay. Not a delay in extending higher, since extending higher hasn’t been signaled. A delay in resolving down, since Monday’s range didn’t require a retest first.

But Monday’s range has been retested, anyway, despite not requiring a retest. All available buying pressure has been expended without gaining traction for the effort. Tuesday afternoon’s reaction down did already dip back into Friday’s range, back under its 1773.50-1775.00 “lower prior highs” (to 1772.00). Like the resistance above, now also the support below has been chipped away. Once the FOMC lets the horses out of the barn, they should have plenty of room to run. Yee-ha.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Don’t forget that after the FOMC announcement, Bernanke will host his last Q&A. Trending usually begins after the first Q, and extends until the last couple of As remain. Depending upon whether a prior high or prior low is tested, the close might also trigger a WedEX signal.[/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 session-long rally had inverted… then at least the session would have trended. Instead, sideways ranging was unable to improve upon the open’s probe of three prior sessions’ highs. But no selling pressure was able to trigger more than a corrective dip.

Pattern points… (Setups and technicals)[pay]
Monday morning’s “session-long rally” setup was triggered by maintaining a gap open above Friday afternoon’s 1773.50 high. It wasn’t thwarted by also probing Thursday afternoon’s 1778.50 high, which maintained its recovery through the opening 15 minutes of volatility. The signal also wasn’t affected by testing the third prior afternoon’s high from Wednesday at 1785.00.

The signal wasn’t affected by expending so much energy so early. Post-open action held above the 1777.50 opening print. Sellers were marginalized.

That didn’t translate into extending higher, as would be suggested by being labeled a “session-long rally.” Only one timing window probed the prior timing window’s high. That was the afternoon’s bias environment, and its reaction down under 1781.00 put into play a probe under the 1777.50 opening print.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Whether tested overnight or post-open Tuesday, there is room down to 1773.50-1775.00 before suggesting that Monday’s 1786.25 high won’t be retested. Exiting any timing window any lower would essentially put into play a retest of Sunday night’s low, and closing above Monday’s high could marginalize sellers. Either scenario would last into Friday’s expiration, and so include Wednesday’s FOMC.[/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.