Market Wrap

If the market is in topping mode… then Thursday’s session must be its turbulence. That tends to happen at high altitudes, when descending from the clouds for landing. Of course, it could have been wind shear, which often ends badly.

Pattern points… (Setups and technicals)[pay]
The air is definitely thin up here. Thursday morning’s whipsaws were amazingly choppy. The productive signals weren’t very productive (barely 2 points if that) and plenty of noise from probing signals for no longer than 3 minutes or by more than 3 ticks.

Oversold RSIs at the open’s 1740.00 low require a retest. Their attraction kept inhibiting the morning’s recovery efforts from actually trending. But the attraction remains outstanding “unfinished business below.” Optimism won. The other extreme was the afternoon’s 1749.00 high, which stopped pessimistically short of filling the gap back to Tuesday’s close.

In between those two extremes there were multiple overlapping legs, all ranging around the open’s 1745.25 high. Thursday’s upward bias only stretched the rubber band thinly. It can stretch it more, to retest Wednesday night’s 1751.75 high and Tuesday’s 1754.50 high — potentially up to 1760.25. But maintaining any higher high remains to be seen.

[/pay]What’s Next… (Outlook and opportunities)[pay]
This being a Friday, the the morning’s bias signal is likely to persist through the noon hour. Meanwhile, since closing action trended up, gapping down under the afternoon bias environment’s 1744.50 low would trigger a session-long decline.[/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 Wednesday’s gap down was bearish… then why didn’t it extend down any lower? It wasn’t for lack of trying. And buyers didn’t exploit the weak sponsorship by rallying. But the drop still leaves the burden of proof on sellers, which can be bullish..

Pattern points… (Setups and technicals)[pay]
Tuesday night’s slide really did a number on optimism. But it wasn’t a death-blow. Obviously, not extending down Wednesday is one clue. Still, that’s not the decisive point. This might sound odd at first: Wednesday’s sharply lower price was more bullish than bearish.

Tuesday night’s drop probed well under Monday’s highs. Maintaining or repeating that probe through the open would have reversed the trend down. But even a post-open probe of lower lows could not maintain the pressure through a relevant timing window. Neither could a later dip.

Wednesday morning’s 1741.00 bias-down signal never recovered intraday, so buyers never failed in any effort to gain traction — they never tried to regain traction. Closing under Monday’s 1742.50 “lower prior highs” does keep the door open to extending down Thursday. But sellers failed to extend down despite the one-sided fight, so Thursday’s open will need to gap down if the drop intends to extend.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Post-open action just gapped up to 1743.00, as if the afternoon’s restraint has been lifted. There’s a whole night ahead, but extending through Wednesday morning’s 1744.00 high could be very bullish.[/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 sellers were strong hands… then reversing the open’s surge would have ended in negative territory. Or, at least, probed negative territory. But the reversal barely probed under the open’s lows. And barely touched Monday’s high. Buyers may be waning, but sellers remain patient.

Pattern points… (Setups and technicals)[pay]
Retracing all of Tuesday morning’s surge from 1754.50 sent a warning that the air is getting thin up here. That didn’t prevent the afternoon from rallying to 1753.00. But notice that the recovery did not accomplish anything the morning had not already produced.

The trend is up until it is not. Meanwhile, the burden of proof on sellers. Sellers gained no traction for Tuesday’s effort. So, reversing momentum down immediately must begin by gapping down.

Even then, gapping down Wednesday only to probe under Tuesday’s 1742.00 low would not signal that sellers have regained control. It might only be a little more proof that buyers are thinning out. Anything short of breaking under Monday’s 1735.00-1736.00 lows could still recover to retest the overbought RSIs at Tuesday’s highs.

I published an update to the bigger picture outlook midday Tuesday, “Social compact, meet vicious circle,” that helps to anticipate whether the rally is ending, or extending.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Not absorbing and reversing the rally Wednesday would allow it to extend to its next higher targets at 1760.25 and potentially 1774.50. Avoiding any higher targets would require rejecting Tuesday’s rally by Wednesday afternoon.[/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 Employment Situation report triggers one response regularly… then might it trigger a different response when released on Tuesday instead of Friday? The delayed report will be released before Tuesday’s open. Monday’s narrow range within a narrow rally suggests that the reaction will be volatile.

Pattern points… (Setups and technicals)[pay]
Monday’s sideways ranging offered no new signals. There was no unfinished business outstanding to attract price in either direction. A pre-open high that didn’t require a retest was nevertheless retested up to 1742.50. Its reaction in the opposite direction to 1734.75 left unfinished business below at its oversold RSIs.

Post-close developments had no impact on the ES. Not even on NQ. But a lot of impact on NFLX which spiked up sharply in reaction to earnings. It was reminiscent of last week’s GOOG earnings reaction. It’s interesting that momentum stocks are behaving like their bubbles are inflating, yet launching barely a ripple on the broader market.

There is nothing predictive from this relationship, which can only serve as a warning of thin buying sponsorship. But considering that this rally is already living on borrowed time, and that it just spent an entire session hesitating, the anecdotal may be more insightful than valuations.

[/pay]What’s Next… (Outlook and opportunities)[pay]
One inhibition Monday afternoon was likely Tuesday morning’s Employment Situation report. That, too, shall pass. We don’t have a history of delayed NFPs, or Tuesday NFPs, so we don’t have any extra insight into the market’s reaction. For example, the Employment Situation reaction is usually reliable for not reversing any initial trending in the opposite direction. But that’s on Fridays, when the weekend’s illiquidity is inhibiting countertrend sponsorship. There is no such inhibition Tuesday.[/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 final hour had been entered at fresh highs… then the balance of the session could have trended up sharply. Friday suffered no consequences for the interruption. Either the rally needs a corrective dip before extending higher, or it will try to extend higher prematurely.

Pattern points… (Setups and technicals)[pay]
New highs on a Friday tend not to be a trend’s high. Friday’s close above all prior highs now requires there to be another. An immediate downleg is possible, but it would be required to recover. Expirations are even less likely to close at a trend high.

Nevertheless, this overly optimistic stage of the rally is living on borrowed time. That can go on indefinitely, so long as rally legs are steep, and so long as pullbacks are brief, shallow or overnight..

There is room for noise above prior highs up to 1760.25 or 1774.50, without being more than the prior high’s retest. Neither yet need be tested, but the leg there would reveal whether higher hghs would be likelier than reversing back down. Reversing down immediately would have room to 1722.50 without ending the rally’s momentum.

[/pay]What’s Next… (Outlook and opportunities)[pay]
This week’s Market Wrap essentially began 30 minutes earlier, and served in place of this weekend’s Saturday Strategy Session, which is NOT being held this weekend. Its recording is linked from both Friday’s Market Wrap and the Saturday Strategy Session blog pages.[/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.