Market Wrap

If not for news stories… then the past two afternoons might have trended into their closes. Thursday’s recovery happened to peak when the capitol shooter story broke. Wednesday afternoon’s consolidation got word of a meeting at the White House, and that was the end of its trending. The impending weekend might not change that pattern.

Pattern points… (Setups and technicals)[pay]
Thursday’s session left no unfinished business below, as its 1670.50 bias-down target was met at the morning low. Thursday actually neutralized unfinished business below — retesting the gap back to Monday’s 1670.00 opening print, retesting Monday’s 1666.75 low, and filling the month-old gap back to 1663.25. The cash session close even equated to the morning’s 1670.50 bias-down target. Nice touch.

Just one thing is missing for a rally — a trigger. Buyers gained no traction for their effort Thursday afternoon, so they’ll need a gap up Friday to regain control. Actually, since Thursday trended down into its close, gapping up above its 1677.50 bias environment high would trigger a “session-long rally.”

Failing to rally need not decline by default. But the door is open. Thursday’s late break lower was 1 minute too late to qualify for a hold-short. Extending lower anyway to break under 1662.00 would put into play 1648.00, and potentially 1629.00.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Fridays are interesting for their mornings being vulnerable to exacerbating early trending. Exacerbated, or not, morning trending often leads to a predictable afternoon. No morning trending often leads to a slow afternoon. Don’t forget, there is no Employment Situation report to serve as a catalyst.[/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 morning’s drop had lasted any longer… then Wednesday’s rally would have been much higher. Since Wednesday’s rally wasn’t any higher, it might have been only a corrective bounce. That’s an important question and it should be answered by noon Thursday.

Pattern points… (Setups and technicals)[pay]
Two consecutive afternoons have failed their attempts to reverse momentum down. Wednesday was the better effort, dipping back to two prior lows, but not lower when it mattered. That doesn’t prevent intraday sell-offs, but it limits their ability to damage the chart. A downleg would have to be very powerful to do anything more than just retest Monday’s 1666.75 low.

That’s in-line with expectations for retesting Monday’s low by only by a couple of points. Of course, expectations were also for Wednesday’s drop to extend into retesting Monday’s low, where a gargantuan rally could be launched. Rallying prematurely prevented reaching levels more attractive to stronger buyers.

Extending higher without delay Thursday and holding up through the bias environment would at least marginalize sellers into Friday afternoon. A gargantuan rally may be off the table. Rejecting early gains Thursday, or simply sliding without delay, would again target a retest of Monday’s low. If tested any deeper than  a couple of points, then it could be tested much, much deeper than that.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Be mindful of the headline risk. The longer the shutdown, the closer to its resolution. The closer to its resolution, the more believers in rumors of its resolution. Similarly, the longer the shutdown, the more it is already discounted in price. And the more it is already discounted in price, the more upside reaction when all of those believers buy on the rumor of its resolution.[/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 rally doesn’t teach laypeople about “discounting”… then nothing can. Monday’s drop had built into its price the potential for Tuesday’s news. Perhaps Friday’s drop was part of that discounting, too. Will the next lesson be, “Corrective Bounce”?

Pattern points… (Setups and technicals)[pay]
Rallying after buyers failed to gain traction on the prior day must begin properly, by gapping up above that prior day’s high. The rally otherwise tends to fail. Monday’s buyers didn’t gain traction for their late effort, and Tuesday’s rally did not begin by gapping up. That undermined the rally effort.

Nevertheless, Tuesday afternoon’s sellers only retraced 61.8% of the morning’s rally, but not all of it. And a last-minute 7-point spike up probed the morning’s 1690.50 high by nearly 2 points. Not exactly a rejection of the morning’s rally.

Despite the late surge, buyers again didn’t gain any traction for the rally effort either. But neither did sellers. Tuesday morning’s rally has as much potential to resume Wednesday, as does Tuesday afternoon’s decline.

Recall the images I posted Monday morning of two sample shutdowns from 1995.  While they’re not intended to be predictive, the second shutdown’s market reaction (boxed in red) is interesting today. If it were to track, then Wednesday would resolve in a fresh low.

As it happens, Monday’s 1666.75 low could stand to be retested. Not for its oversold RSIs so much as for leaving its gap down outstanding. Again, there is no reason to rely on a one-off pattern from an event that last happened 17 years ago. But retesting Monday’s low would not necessarily break lower.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Resuming Tuesday afternoon’s decline to retest Monday’s 1666.75 low could form a durable bottom for at least a corrective bounce. The default scenario isn’t necessarily to rally, but gapping up above Tuesday’s 1689.50-1690.50 highs would get every benefit of the doubt for extending higher intraday with potential t to 1703.00.[/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 shutdown countdown takes stocksdown Tuesday… then a durable bottom probably won’t print until Thursday. Magically reaching an unprecedented 11th hour agreement would easily gap up — and leave unfinished business below.

Pattern points… (Setups and technicals)[pay]
Hope might not spring eternal, but there’s always some time allotted to it intraday. Sunday night’s gap down was support until Monday’s open was near, and then it extended lower. That was very short-lived, and reacted up sharply. Similarly, Monday afternoon’s selling wasn’t very productive until the last timing window got underway. That was supported at the same levels that held Sunday night’s gap down.

The session gapped down, spent the entire day in negative territory, and retraced almost all of the midday rally. Yet, sellers aren’t necessarily strong hands, they’re just a little stronger than buyers. Example: The afternoon’s 1672.00 minimum target was fulfilled, but optimism prevented fulfilling the potential to 1670.50. Then that optimism produced a 7-point surge into the close. No buying pressure was left outstanding.

The open’s pessimism was quickly punished, and the afternoon’s optimism was quickly rewarded. Monday’s buyers gained no traction for their efforts, failing to recover 1678.00 (reaching 1675.75 pre-close, and 1679.50 post-close). So, rallying Tuesday will require hope to spring overnight for gapping up sharply, preferably above 1683.50. The trend otherwise remains down.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Take note of the resistance levels above if trading overnight, especially those that must be recovered through Tuesday’s open for extending higher. Testing them overnight wouldn’t necessarily be a sign of strength, and could instead refuel sellers. Although the same is true to some degree for probing fresh lows, any “new Globex trend extreme” would undermine a recovery.[/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 a session-long decline had actually gained traction… then the setup would have leveraged the weekend’s impending illiquidity to trend down sharply intraday. Did that same illiquidity inhibit the setup from gaining traction? We’ll see, when the new week begins.

Pattern points… (Setups and technicals)[pay]
A session-long decline setup can influence an entire session because it is triggered against all odds. The prior session will have trended the opposite direction into its close. All of which must be retraced overnight for the open to immediately reject the prior close’s trending.

Typically, fulfilling the setup will produce fresh session lows through almost every timing window, including new lows in the final hour. And if successful, the setup typically also influences the following morning. But Friday’s opportunity only kept the market at or under Thursday’s lows. It’s no small feat, but neither is it the setup’s normally great feat.

Friday’s close only tested the 1685.75 level that gapping under had begun signaling session-long decline. It was not recovered, so the setup wasn’t invalidated. A decline Monday morning gets a benefit of the doubt. Not a hold-short over the weekend, but a credible short if Sunday night’s price action were to trend down.

Buyers gained no traction for their effort Friday, so the path higher requires gapping up above Friday’s 1686.75 highs. That’s not so difficult since it was being tested at Friday’s close. Gapping up above Thursday’s 1693.00 close would be more reliable for neutralizing sellers.

[/pay]What’s Next… (Outlook and opportunities)[pay]
We will be having the weekly Saturday Strategy Session at 9:30am ET. Its location is linked from the blog’s sidebar. Please join us for a discussion of the market’s bigger picture, and to review any stock charts you may request.[/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.