Market Wrap

If Thursday lows were so substantial… then why were they retested Friday? It wasn’t to enable Friday’s retest to launch a bigger rally. Instead, chipping away at the lows, leaving oversold RSIs outstanding, and then expending buying pressure for a bounce, these make a bottom difficult to maintain.

Pattern points… (Setups and technicals)[pay]
Friday afternoon’s sell-off that triggered under 1772.00 to 1766.00 recovered just enough early enough to rob sellers of their traction. That was back above 1767.00-1767.75. This recovery didn’t preclude sellers from regaining traction for a sell-off into the close. What’s interesting is that they didn’t even try.

In other words, during a 7-point bounce back up to 1773.00, only one reaction dipped any deeper than 3 ticks. Barely. Sellers did not expend any further energy after retracing the afternoon’s earlier plunge. A 4-point plunge into the position-squaring window was mechanical, and not opinionated.

So, Friday’s late weak-handed bounce had similar sponsorship to Thursday’s late drop, which was retraced entirely overnight. The position-squaring window’s reaction down was more similar to the retracement, and less a part of the late bounce.

Buyers expended all available energy without gaining traction for the effort. Patient sellers prevented the bounce from closing above relevant resistance. Despite preventing a close under Thursday’s lows, the burden of proof at Monday’s open is on buyers. Any immediate evidence of sellers taking control would be likely to trend down sharply intraday. But exiting the open above Friday’s highs would at least allow a bigger corrective bounce.

[/pay]What’s Next… (Outlook and opportunities)[pay]
We’ll go over this and other bigger picture elements at the Saturday Strategy Session. Its link can be found in the blog’s sidebar, and it starts 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.

If Thursday’s last downleg had begun any earlier… then it probably would have closed under the morning’s low to qualify as a hold-short. But it was all sellers could do just to return to the morning’s low by the close. They ran out the clock so there wasn’t time to change possession of the ball. Friday’s buyers might need nothing less than a 90-yard kickoff return to regain control.

Pattern points… (Setups and technicals)[pay]
The premise for Thursday’s session was that it wouldn’t immediately resume trending down, but that it would resume trending down eventually. The morning’s choppy ranging around Wednesday’s lows served that initial purpose, although a higher corrective bounce was more likely.

Having corrected too low, the noon hour’s probe of new lows bounced from support instead of trending down. That bounce was sizable, but it gained no traction since it developed entirely during a no-bias environment. The bounce’s retracement was also sizable, and it was also ill-timed.

Thursday’s sizable ill-timed plunged might avoid the same consequence as the afternoon’s rally. The bounce peaked at resistance when it needed new sponsorship to break higher, with time remaining for opposing sponsorship to push lower. Similarly, that push lower fell to support, and needs new sponsorship to break lower — but there was no time remaining for opposing sponsorship to rally.

Neither buyers nor sellers gained traction for their efforts Thursday. But it is not from equilibrium, and the next trending signal is that much likelier to extend.
[/pay]What’s Next… (Outlook and opportunities)[pay]
5-6 week old “lower prior highs” around 1762.00 are likely to be tested. And since testing the last prior low last Wednesday produced a relevant bounce, the next prior low’s test probably will not. Nevertheless, beware of the potential to bounce up sharply from new lows, especially if not maintained through the open. Meanwhile, gapping up above Thursday’s 1777.00 highs would be credible for extending higher, but anything shallower would be suspicious. [/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 two days of ranging had been followed by a third… then volatility might have remained dead through Christmas. Wednesday’s slide made up for lost time. Pessimism at Monday’s high may have delayed the reaction down, but breaking free from its orbit at Wednesday’s open had plenty of time to launch.

Pattern points… (Setups and technicals)[pay]
Despite triggering late, Wednesday afternoon’s 1782.25 bias-down target was met. Closing back above it would have suggested its sellers may not be strong hands. Meanwhile, Wednesday’s 1779.25 low probed last Thursday afternoon’s late low, also 1782.25. Closing decisively under 1782.25 would have suggested the trend remains down.

A bounce into the close went out testing 1782.25. No hold-short could be considered, and it was too late in the session to consider a long. That’s not to say a bounce or further decline isn’t possible, only that the odds aren’t overwhelming in either direction.

Wednesday’s decline expended a lot of selling pressure. But sellers gained traction for their efforts by closing under the noon hour and bias environment lows. They also damaged the rally’s chart by filling the gap back to the last low close, without closing back above it.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Wednesday’s late 10-point drop can be retraced up to 1780.75 basis Mar (1787.00 basis Dec) before beginning to suggest momentum may be reversing up. Recovering 1783.75 basis Mar (1790.00 basis Dec) through Thursday’s open would actually reverse momentum up, probably through the weekend. Otherwise, the decline is free to extend without further delay.[/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 pessimism at Monday’s highs is potentially bullish… then Tuesday’s day-long test of support should only be more so. Failing an attempt to rally, or not attempting to rally at all, would be bearish.

Pattern points… (Setups and technicals)[pay]
Selling at Monday’s highs was impatient and pessimistic. A new downleg was unlikely to begin without first probing above it. Attempting a new downleg was likely to recover. I’ll go out on a limb, and proclaim that “we’ll see.” Obviously, the pattern must resolve eventually. But I will also suggest that it hasn’t yet resolved.

Tuesday’s open gapped down about 4 points to 1804.00, and the entire session ranged sideways around it. The morning’s test of 1808.00 was offset by several afternoon tests of 1801.50. That’s not a resolution.

Tuesday’s last dip overlapped 1803.00-1804.00 into the close. That was also the morning’s low. The noon hour’s entry was also overlapping it, too, and so was the afternoon bias environment’s exit. Its support has been chipped away, but not broken. That’s not a resolution.

Since buyers gained no traction for their efforts Tuesday (what efforts?), rallying Wednesday morning would require gapping up. A probe of fresh highs whose origin gaps up would suggest the probe would fail. But having chipped away at support, extending down any deeper into Friday’s range would be unlikely to recover, and more likely to resume the downleg that ended last Wednesday.

That’s a resolution.

[/pay]What’s Next… (Outlook and opportunities)[pay]
There are no econ reports of importance Wednesday. A budget deal may be getting nearer, which means rumors confirming or denying it should become more frequent. They are usually opportunities to fade, as their effects tend to be short-lived.[/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 afternoon had probed the morning’s high before faltering… then the session would have been “ineffectual optimism.” But it didn’t. The afternoon high stopped 1 tick short of touching the morning’s highs. That’s pessimism. Rather than undermine buyers, it undermines the credibility of sellers that sponsored the dip back to session lows.

Pattern points… (Setups and technicals)[pay]
The least likely scenario for Monday was to range sideways without expressing any sentiment. Friday’s upward biased session lacked momentum, making Monday likely either to express it upward extensively, or else to reverse down aggressively. Monday did trade exclusively above Friday’s highs, which is extensive, but still lacked momentum.

Trending back down without first probing fresh highs is unlikely — trying to trend down is possible, probing into Friday’s range but then recovering through Monday’s highs. That pattern would not necessarily recover intraday.

That pattern would also be less likely to quickly reject fresh highs. Monday’s late-morning and afternoon pessimism compared to the open’s high, and the open’s high had stopped pessimistically short of the Thanksgiving high. All of which is potentially bullish from a contrarian perspective. Much further delay in probing fresh highs would create more contrarian bullishness to satisfy with ever higher probes.

[/pay]What’s Next… (Outlook and opportunities)[pay]
First probing the highs, and then reversing down, would be more vulnerable to reversing down substantially, if not also durably. That doesn’t mean not to participate in a move to fresh highs, nor does it mean to sell fresh highs when possible. Multiple timing windows may be spent probing the highs before reversing down, if there were even a reversal down.[/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.