Market Wrap

If Friday’s open isn’t making a decent rally effort… then the next decent rally effort might not develop until testing much deeper levels.

Pattern points… (Setups and technicals)[pay]
Wednesday afternoon identified a relevant price at 1756.00-1757.00. Trading above or below it at relevant times would be predictive. It was recovered through Wednesday’s close, suggesting that the sponsorship who produced that relevant price was losing traction.

1756.00-1757.00 supported a gap down Thursday. It didn’t prevent fresh lows Thursday morning down to 1750.25, but that reacted back up above 1756.00-1757.00 to fresh session highs at 1764.00.

1756.00-1757.00 ultimately broke lower again. Its break was maintained through the close. Its break was underway before getting to within 3 minutes of the cash session close. And its break was underway already coming out of the position-squaring window.

Its break was not underway before entering the final hour, or at least through the 3:10-3:20 timing window. Either of those timing windows would have been optimal, for a break under 1756.00-1757.00 to signal it was sponsored by strong hands. This later break still gets a benefit of the doubt, at least for probing lower overnight. But the break’s later timing makes any overnight dip more vulnerable to being retraced in time for Friday’s open to have recovered into positive territory.

That would be bullish. And being a Friday, that could gravitate higher or rally outright through the noon  hour.  Just recovering 1760.00 through the open could marginalize sellers for the day, and a retest of Wednesday’s 1772.25 pre-open highs would be likely. But now that older “lower prior highs” at 1753.00 has been visited (Wednesday), revisited (Thursday morning), and re-revisited (Thursday’s close), exiting Friday’s open any lower would signal a bigger decline underway.

[/pay]What’s Next… (Outlook and opportunities)[pay]
There is no Market Tour Friday. I will be in the Chartroom and updating the Blog during the morning, before the 10:15 bias timing window is triggered, and through the bias environment. I’ll be back again for the last couple of hours. Thank you![/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 began a new downleg Wednesday… then it’s probably only a correction. A deep correction, but only temporary. The more bearish path down would begin by trending back up.

Pattern points… (Setups and technicals)[pay]
Wednesday’s FOMC reaction was a lot of noise, ranging  choppily between 1760.00-1765.00. Then a bigger reaction fell sharply to range choppily between 1752.00-1760.00. The range was ratcheted down, and widened.

And it didn’t extend.

Let’s put that into context. Price had trended down into the FOMC announcement. The morning ranged sideways, and the noon hour fell. All of which followed a bigger slide from overnight highs 11 points higher. That’s a lot of selling pressure to expend.

But sellers did gain traction, closing under the noon hour’s lows which were already in negative territory. That tends to be rewarded the following day. A late bounce had tried to close higher, but only expended buying pressure — without it gaining traction.

So, lower lows are likely, putting the burden of proof on buyers. Closing under 1745.00-1750.00 would be a second consecutive lower close, while also being a trend change signal for closing under the 1752.00 prior low. Early weakness that recovers, or simply extending higher without delay, would target a retest of Wednesday’s 1773.25 pre-open “new Globex trend extreme” before a bigger downleg begins.

[/pay]What’s Next… (Outlook and opportunities)[pay]
I will be away from the market until Thursday’s final hour. There will be no intraday posts or Market Tour. I appreciate everyone’s indulgence![/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 ever intends to recognize its numerous extreme valuations… then it had better do so quickly, before the rally becomes parabolic.

Pattern points… (Setups and technicals)[pay]
I’m not critical of the overvaluation observations, or of the extreme measurements and ratios that the market now finds itself. It found itself among the overbought and uncorrected indicators dozens of points ago. It’s just that these situations can extend indefinitely. By definition, the market must have triggered extreme readings some time ago, in order for those readings to be historically extended now.

None of which matters until the market decides it’s done. We’ll know that from its behavior. And there is specific behavior that tends to precede a turning point.

My index relative performance setup that we discussed Saturday and I wrote about Monday is intended to identify when the market has decided to care about its extreme condition. But even that did not prevent extending higher Monday and Tuesday.

The reverse relationship that was signaled Friday, was signaled again Tuesday. This behavior suggests that big money is invested but not optimistic. It’s not the sort of defensive posturing that might be expected ahead of an FOMC meeting, so a negative reaction would not be easily absorbed. And positive news is already discounted.

[/pay]What’s Next… (Outlook and opportunities)[pay]
I am broadcasting from the road this week, and bandwidth is not cooperating. We’re trying one more thing Wednesday morning, but I am not hopeful. Meanwhile, I will be typing very much onto the chart screen. Let’s skip Wednesday’s pre-open Market Tour. Don’t skip the afternoon’s FOMC policy statement.[/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 downlegs only occur when all upside targets are met… then there would never be any downlegs. There is always potential for extending valuations and for indicators to create new extremes. None of which is a timing indicator. Although, a lot of bearish readings have been getting a lot of attention.

Pattern points… (Setups and technicals)[pay]
Monday’s probe of new highs didn’t extend too much higher, and it fought off two or three downdrafts, beginning overnight. The recovery’s were impressive, but a lot of energy was expended just to avoid dipping into negative territory — at least, too deeply or for too long.

The energy was productive, producing a new high close 4 points above Friday’s 1755.00 high. The morning’s 1760.25 bias-up target was essentially fulfilled, but the 1762.25 overnight high’s “new Globex trend extreme” was left outstanding. It requires an intraday retest, but not necessarily immediately.

Meanwhile, a lot of selling pressure was absorbed intraday, and it was rewarded with a new high close. But that new high close was under the morning’s high, and the last timing window was still testing Friday’s highs as support. It’s not a sell signal, but the uptrend continues to show signs of waning.

[/pay]What’s Next… (Outlook and opportunities)[pay]
A lot of bearish indicators and valuations have been appearing, all based on historical measurements. And they may all be valid. It’s the sort of widespread bearishness that would be a classic contrarian buy signal — if the market had been declining for a couple of weeks. These are just a bunch of contrarians — not necessarily wrong, and perhaps eventually right. But we’re interested in the windows in between… DON’T FORGET: There is no Market Tour or First Trade blog post Tuesday morning, and I hope to be at the screen in time for the open.[/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 Friday’s late surge had originated earlier… then it could have probed prior highs and also rejected them before the close. The late break higher was weak hands, but sellers have yet to appear.

Pattern points… (Setups and technicals)[pay]
It’s a new trend high close on a Friday. That means this is probably not THE high close for the trend, since trends just don’t end on Fridays.

I say “probably” instead of “absolutely is” because the 1753.75 cash session close was under Tuesday’s 1754.50 intraday high. A momentary surge to 1755.75 came after the close. Intraday buyers did nothing new they had not already done. The new high close may actually be just noise within the range. Closing higher would have been more reliable, but meanwhile it gets a benefit of the doubt.

“Probably” applies instead of “absolutely” also because Friday wasn’t accumulative. Its late surge was enjoyable and predictable, the mechanical effect of being positioned at 1751.75 resistance when it was too late for countertrend sponsorship to appear. But the session’s anemic advance was of the same breed as Wednesday absorbing sellers without then rallying, and Thursday morning’s ranging that grudgingly firmed into the close.

The air is thin at high altitude, and altitude is a moving target for markets. So, we rely on turbulent behavior to tell us if the upside may be getting limited. None of which is a sell signal, but all of which makes the market more responsive to negative developments.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Join us this weekend for the Saturday Strategy Session at 9:30am ET. We’ll be skipping the next two weeks (I’ll be broadcasting from the road), so be sure to attend for a bigger picture discussion and stock review.[/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.