Market Wrap

If an upleg at this stage of the rally weren’t steep… then it would be very vulnerable to falling over from losing its balance. Sponsorship took too little time to refuel after ending its last upleg. These buyers are much weaker-handed, and unlikely to defend weakness.

Pattern points… (Setups and technicals)[pay]
Thursday morning’s rally from the 1706.50 pre-open low extended through Wednesday’s 1717.00 highs without any refueling dip. Slicing through Wednesday’s 1717.00 highs extended through the noon hour with a minor challenge. Ironically, it was the bias environment’s pullback that might be this rally’s undoing.

That’s because the pullback from 1724.75 to 1720.75 didn’t resume the rally until only weak hands would be productive. And they were productive, extending up to 1728.50 and probing last month’s FOMC reaction for a new high close. Optimism is so extreme, that the afternoon ahead of GOOG’s earnings rallied sharply, instead of posturing defensively.

But this optimism continues to be weak-handed sponsorship, living on borrowed time. Like the U.S. government apparently, that borrowing can extend for an indefinite time. But not infinitely. The eventual top will appear aggressively, and it probably won’t recover from its first probe under a prior lows.

[/pay]What’s Next… (Outlook and opportunities)[pay]
GOOG’s earnings reaction was a $56 surge to new highs. S&P futures have benefited to the extent of a single errant tick up to 1728.75. And that has reacted back down to 1727.25. That suggests the market’s optimism is extended, when apparently all the good news is already reflected in price. What’s going to happen at the hint of bad news? [/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 were a session-long rally… then Thursday morning should produce fresh highs. Just remaining aloft after Wednesday’s opening surge isn’t optimal for the setup. But the burden of proof is much more on sellers until late Thursday morning.

Pattern points… (Setups and technicals)[pay]
Wednesday’s new high close is not a breakout. It reversed only one declining session in recovering to new highs. So, closing higher Thursday wouldn’t be a confirmation, and wouldn’t require a third higher close. In other words, Wednesday’s attempt to resume the rally is vulnerable to peaking and reversing down at any moment. It is the definition of “living on borrowed time.”

That vulnerable rally is still capable of extending higher. But it requires new sponsorship. Wednesday’s buyers were already satisfied. Multiple consecutive timing windows overlapped the same range — that is the opposite of trending. Neither buyers nor sellers gained traction for their efforts.

Meanwhile, it was premature to resume the rally Wednesday. This also suggests the rally attempt is living on borrowed time. It also suggests there is a greater vulnerability to reversing down much sooner rather than later. Extending any higher intraday would likely target 1724.00. Back under 1702.00 would start to seal a top.

[/pay]What’s Next… (Outlook and opportunities)[pay]
The debt deal seems to be on auto-pilot at this point going forward. A negative headline would be even less credible now, than during the past week. I wouldn’t buy weakness that hasn’t already begun recovering. And I would become a seller if any support were broken through a relevant timing window.[/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 rally had potential into Tuesday morning… then was any unfinished business above left outstanding after mostly trading negative Tuesday morning? Almost, but no. The gap down was recovered just enough to momentarily pierce Monday’s high before the afternoon reversed down more deeply.

Pattern points… (Setups and technicals)[pay]
Declining is not the opposite of rallying. Not rallying is the opposite of rallying. So, even if we were 100% assured that the rally did peak Tuesday, that doesn’t require momentum to reverse down. It might, but not because the upleg ended. Another upleg could still begin.

Not immediately, though. So, immediately retesting Tuesday’s 1706.50 high would be unlikely to extend the rally. That opportunity was missed by not already closing higher Tuesday. But a retest of Monday night’s high in the 1710.00 area could be tested while forming a top.

Tuesday afternoon’s slide back down to 1692.00 was presumably on its way to retesting the 1690.00 session lows (to fulfill the Pivotal Uptrending Support break, described in detail on the Market Wrap recording). That hasn’t prevented a post-close surge to 1697.50, reacting to another headline… of course.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Tuesday’s closing action trended down, so gapping up Wednesday above Tuesday afternoon’s 1701.75 bias environment high would form a “session-long rally” setup. Just recovering the last hour’s 1699.25 high would rob sellers of their traction, and either setup would have potential to retest Tuesday’s highs. But extending Tuesday afternoon’s decline through Wednesday’s open could retrace much of the past week’s rally quickly.[/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 extreme sentiment greets the new week without recovering… then its sentiment extreme would be much further away. But greeting the new week with extreme sentiment is often a sentiment extreme, as Monday’s gap down proves once again.

Pattern points… (Setups and technicals)[pay]
It took a morning-long consolidation at 1688.00-1691.00 before Sunday night’s gap down to 1681.00-1684.00 was truly rejected. But it was recovered entirely, extending to fresh highs. And extending through the afternoon bias environment to a new session extreme essentially marginalized sellers.

That superpower helped to absorb the knee-jerk reaction to a negative headline that triggered a 4-point plunge to 1700.00. The plunge ended within 3 minutes and recovered to a fresh high at 1706.00. One problem — the knee-jerk reaction down was not recovered in time to enter the final hour above the bias environment’s high. The chink in the armor showed when the fresh high also reacted down through the 3:10-3:20 window. The balance of the session ranged sideways.

The rally off of Wednesday’s low had potential for extending into Tuesday morning, and ranging narrowly Monday afternoon may have been trying to keep enough buying pressure in reserve to make that happen. FFresh highs testing the 1710.00 area need not be rejected, but they would be vulnerable. And rejecting fresh highs testing the 1710.00 area would target Monday’s 1687.00 opening gap, and lower.

[/pay]What’s Next… (Outlook and opportunities)[pay]
The bullish path would first dip to 1696.50-1698.00 and trap shorts to fuel a probe through the 1710.00 area. Rallying first to the 1710.00 area could extend higher, and the burden of proof would still be on sellers, but that vulnerability to reversing down would be no less.[/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 rally was a breakout… then Friday was its confirmation. Sessions shouldn’t serve dual purposes, and Thursday was already the first countertrend day. So, could Friday serve as the breakout? Yes, subject to confirmation by closing higher Monday. Sidenote: Friday breakouts are rarely confirmed on Mondays.

Pattern points… (Setups and technicals)[pay]
Thursday’s “session-long rally” produced Friday morning’s higher highs. The higher prior gap at 1689.25 was filled. No sell signal gained any traction Friday afternoon. And a last-minute surge extended to fresh highs at 1699.00.

There is no unfinished business above.

Extending higher still has potential to test 1702.25, but no requirement to do so. Friday’s higher close does qualify as confirmation to Thursday’s breakout — to the degree that Thursday was a breakout, since its close was still overlapping prior highs.

Friday’s last-minute surge from 1693.00 eventually extended to 1700.00. Clearly, pessimism was squeezed before the weekend. So long as 1696.50 holds as support, the rally might extend. But anything above 1696.50  is living on borrowed time. And failing to hold it through any relevant timing window would start to signal a reversal down is forming.

[/pay]What’s Next… (Outlook and opportunities)[pay]
I’ll go over the market’s bigger picture in greater detail at this weekend’s Saturday Strategy Session. Join us at 9:30am ET, where you can also request instant analysis of any chart you choose. 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.