Market Wrap

If global markets rallied after the FOMC spike up… then will they decline overnight after Thursday failed to extend the rally? S&Ps resuming or extending their rally into the weekend might depend upon global markets ignoring Thursday’s pullback.

Pattern points… (Setups and technicals)[pay]
Meeting a target to within 3 ticks is close enough to neutralize its attraction. Attacking the 1712.50 objective down to 1713.25 — which was put into play Thursday morning at 1723.50 — was close enough to neutralize it. No rally exploited that, so 1712.50 may still be tested, especially if Friday’s open is not already rallying.

Expiration’s open is otherwise impossible to call. All the more so with this one, after spiking up so substantially after Wednesday’s FOMC news. Expiration’s post-open price action can be very predictive, but the opening print and post-open direction are wild cards.

That FOMC spike up is why the passively bullish WedEX indicator is at all bullish. Triggering the signal two hours earlier would have made it passively bearish. It would not be surprising for the signal to invert. But that would require an inversion signal, and expiration is otherwise biased upward.

[/pay]What’s Next… (Outlook and opportunities)[pay]
A shallow opening dip or bounce that holds 1707.00-1721.50 would likely be range bound for the balance of the day. An early break beyond either end of that range, or just putting into play a test of either end, could keep trending through the 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 taper didn’t start in September… then October, right?

Pattern points… (Setups and technicals)[pay]
FOMC voted against tapering in September, after all. Fear of tapering began in earnest at August’s highs. Retracing the deep drop doesn’t change whether it happened. It can happen again.

Wednesday’s rally certainly got a lot of buying out of the way. I’ve never seen a post-FOMC environment trend relentlessly in one direction. Usually there are a couple of steep reversals. Wednesday’s announcement included Bernanke’s Q&A, which also extended in the original direction. Everyone’s a believer.

August’s high was still being tested as resistance until FOMC came at 2 hours before the close. Regardless of the degree to which it broke higher, it broke higher so late as to be suspicious of its breakout. This is where a “second consecutive confirming close” is so important. Closing higher Thursday would be bullish.

Closing negative Thursday, but above August’s prior highs, wouldn’t necessarily be bearish. WedEX triggered a passively bullish signal. Converting it to bearish at Thursday’s open essentially requires breaking back under 1697.50 through the open, perhaps just closing under 1692.00-1693.25. Anything higher, although negative, would still undermine sellers.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Overbought RSIs at Wednesday’s 1723.25 high require a retest. Reversing its test back into negative territory would likely reverse momentum down. At least overnight strength is likely in sympathy as global markets get a chance to react to FOMC 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 expectations were for FOMC to taper… then would the market rally into the news? Expectations until Sunday morning were for Larry Summers to replace Bernanke. The market gapped considerably from Friday’s close on the Summers news. How big of a gap would be triggered by a taper surprise?

Pattern points… (Setups and technicals)[pay]
To taper, or not to taper… that is the question which will be answered Wednesday. Things might heat up a little. That would be a nice change from Tuesday’s two consecutive 1-1/2 point ranges, which were separated by a single 2-1/2 point surge.

Optimism remains alive ahead of the FOMC news. Not quite ineffectual optimism, in that the hovering is actually extending higher. But certainly not pessimism, either. In fact, a last-minute surge probed fresh session highs.

That last-minute surge came to within 3 ticks of fulfilling Tuesday morning’s “unfinished business above” at its 1700.00 bias-up target. Monday’s 1699.50 opening print was met to within a single tick. Officially, only a retest of Sunday night’s 1703.75  “new Globex trend extreme” remains outstanding.

But no unfinished business above can prevent an interim downleg, or prevent a downleg from extending without recovery.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Perhaps anxiousness ahead of the FOMC meeting is responsible for Tuesday’s narrow ranging. Perhaps it is the lack of news. Look for both to change 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 not for the DC navy yard shootings… then would the retracement of Larry Summers’ news have been shallower? I wonder whether there would there have been a retracement at all, since the pullback’s measurements were normal. Perhaps the effect simply prevented the correction from ending sooner.

Pattern points… (Setups and technicals)[pay]
The week was greeted with the shocking news of Larry Summers withdrawing from consideration to replace Bernanke. S&P’s soared 21-22 points to 1703.75 as soon as they were allowed to trade. Shocking news of shootings at the D.C. navy shipyard greeted the open.

Fully discounted bullish news is vulnerable to being retraced. The shootings could have added a lot more fuel to the fire than just declining through the day to 1688.00. But that was a normal 61.8% correction of intraday movement.

This week’s expiration exacerbated the effect of blind-siding the market. It will probably contribute to more volatility. Both the gaps back down to Friday’s 1681.50 close and Monday’s 1699.50 open want to be filled. No particular sequence is required, but I suspect the first one will launch a more substantial trend in the opposite direction.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Monday’s closing action didn’t trend down, but its bounce only probed back above prior lows. Gapping open Tuesday above Monday afternoon’s 1695.50 high would still be credible for triggering a session-long rally. Gapping up is also the only way for a rally to gain traction, since despite closing well into positive territory, Monday’s buyers gained no traction for their efforts. [/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 Jim Grant weren’t speaking on CNBC at the time… then would Friday’s last-minute decline attempt have attacked the morning’s low, or broken it? The low-volume environment leveraged the reaction to his comments into a 5-point surge. Trending down that much would have touched the overnight low.

Pattern points… (Setups and technicals)[pay]
Friday’s lack of trending was interesting for its predictability. One of several Friday Factors is an early test a support or resistance. If support or resistance were to hold its early test, then we would know that the test was sponsored by weak hands. Having been sponsored by weak hands, the trending attempt is then likely to be retraced entirely.

Friday’s early drop from 1682.00 to 1675.00 was retraced entirely. The drop was sponsored by weak hands, so its recovery required no sponsorship at all. Four hours of ranging narrowly between 1679.50-1681.50 proved that the recovery had no sponsorship. It also proved that the session’s only sponsorship was bearish.

A last-minute attempt to dip again was recovered back into the range at the cash session close. The dip stopped 1 tick short of touching its 1678.50 confirmation before reacting back up into the range — and then through it to attack 1684.00. The trigger was probably Jim Grant on CNBC advising not to expect tapering from Wednesday’s FOMC meeting. It was late enough to have a highly leveraged effect, but too late to invalidate whether Friday’s sellers were still the stronger hands.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Join us Saturday morning at 9:30am ET for the weekly Strategy Session. We’ll update the ongoing analog to 1987’s top. And there are a couple of very interesting possible setups for starting new week, each one being very predictive. Also, bring your stock analysis requests.[/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.