Market Wrap

If the FOMC reaction’s rejection were at all patient… then a rally into and out of the weekend with potential to new highs could have gotten underway. The alternative is something altogether different.

Pattern points… (Setups and technicals)[pay]
Wednesday’s FOMC reaction was a 10-point plunge. Rejecting it was likely to retest Tuesday’s highs. And retesting Tuesday’s highs was likely to close above Wednesday morning’s lows, giving buyers traction.

Tuesday’s highs were retested so quickly that another condition was introduced: Slow down! But the recovery extended too high too quickly, and was retraced entirely.

Optimism became the recovery’s worst enemy. It had already undermined the morning’s dip by narrowly preventing it from testing support before bouncing. At least Wednesday afternoon’s rally followed a probe under prior lows. The problem is that a probe under prior lows also followed Wednesday afternoon’s rally.

Optimism also delayed breaking under the hold-short signal. Follow-through extended through the close more than 5 points below the signal. That borrowed from Thursday’s selling pressure instead of leaving it pent-up to resume the drop then. Optimism is no longer a problem — now the problem is pessimism.

And pessimism isn’t a problem for the recovery, but for the decline. Lower prior highs are near enough to attract price down further if Thursday’s open isn’t already recovering. The decline could extend much further Thursday, and even into and out of the weekend. But only if Wednesday’s late pessimism was finally enough to offset all of the session’s earlier ineffectual optimism. And then some.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Overbought RSIs at Wednesday’s 1654.75 high require being retested. Currently that’s 20 points higher. Gapping up above Wednesday afternoon’s 1646.50 bias environment high would put into play the high’s retest. Otherwise, the next lower support is 1632.00, whose break would target 1621.00. [/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 not for Tuesday’s late drop… then its buyers might have gained traction. Instead, the minimum requirement for avoiding new lows may be to gap up Wednesday.

Pattern points… (Setups and technicals)[pay]
Tuesday morning’s “no-bias trending” above its 1649.25 bias-up signal wasn’t going to extend forever without retracing. But it could have extended a lot for a long time. No subsequent timing window extended the trending, keeping its near-term retracement potential alive and well. A late break under the afternoon’s narrow range fell to within 3 ticks of 1649.25.

3 ticks would be close enough to neutralize its attraction, especially if there were a reaction up, but there was not. Tuesday’s 1646.00 print at the 10:15 bias timing window may be retraced, too.

Meanwhile, Tuesday was an “inside day.” Its bounce can extend higher, like last Wednesday’s inside day extended down Thursday, but probably not without gapping up. In fact, having trended down into Tuesday’s close, gapping up Wednesday above its 1655.75 afternoon high would trigger a session-long rally. And it could extend into the weekend. The decline is otherwise vulnerable to resuming.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Wednesday afternoon’s FOMC Minutes could be a catalyst to resume or to reverse trending. It could also inhibit either before its release. Regardless, the afternoon is all but assured to be volatile, and the morning is likely to be, too.[/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 Monday’s lows were probed first… then the balance of the session could have been spent probing positive territory. That would have left a new low close outstanding. The alternative was to leave downward momentum outstanding. A bottom didn’t have much of a chance.

Pattern points… (Setups and technicals)[pay]
Monday’s new low close fulfills the minimum requirement of last week’s trend change signal. The trend may yet extend down, sharply and substantially, but not because of the trend change signal. More important is that a bounce would not be doomed in order to fulfill the signal.

A bounce is possible since the 1648.00 “lower prior high” is being tested. Also, ts 1643.000 bias-down target was tested and held without putting into play any lower targets. And there are no oversold RSIs or divergences at the low. So, bottoming here would leave no unfinished business below.

Meanwhile, the origin of last week’s break was itself suspicious, and its 1683.00 “higher prior low” could attract price higher. Not that it must be tested ever again, but its test would be likely if any accumulation pattern were to form.

[/pay]What’s Next… (Outlook and opportunities)[pay]
No accumulation pattern has yet formed. Gapping up could extend higher temporarily if 1656.00 were recovered. A hold-short barely avoided qualifying, but gapping down would target 1632.00-1636.00, with potential for extending to lower lows at 1618.00-1621.00.[/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 bearish WedEX indicator is valid despite being triggered late… then Monday morning may simply remain under pressure since Friday afternoon already trended down. That’s not necessary, but it may be the most bullish option while still being bearish.

Pattern points… (Setups and technicals)[pay]
The afternoon bias-down environment probed under 1652.00 three times, deeper each time — attacking, testing and then probing well under the 1651.25 bias-down target. It was still being tested coming out of the bias environment at 2:30.

Only afterward was a bounce underway, too late to be strong-handed or to trigger a short-squeeze. In fact, the bounce had retraced down 3 points from 1657.75 to 1654.75 when expiration’s customary influence sucked price down another 4 points to 1650.75.

The main problem with rallying — perhaps why the last bounce came too late to be strong-handed sponsorship — is the afternoon’s lows weren’t low enough. They bottomed short of touching “lower prior highs” at 1648.00. And lower prior highs really need to be probed.

Throw in the late bearish WedEX influence, and a Friday afternoon rally was going to be difficult, anyway. Now a confirmed trend change signal is going to undermine any rally effort Monday.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Not that a rally can’t develop immediately Monday, it’s just difficult and unlikely. Join us this weekend for the Saturday Strategy Session where we’ll discuss signals for a rally, as well as the consequences and behavior to simply extending down.[/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 that’s the work of weak hands… then what do you think strong hands can do? This is the natural follow-up question to my suggestion that Thursday’s 26-point plunge was sponsored by weak hands.

Pattern points… (Setups and technicals)[pay]
Starting from a standing stop, from Wednesday’s “inside day” close at 1682.25, typically requires new sponsorship. It doesn’t tend to arrive in this manner, by gapping down so substantially. Thursday’s open gapped down to 1669.00, under the 1670.50 prior low and then extended down to 1657.00.

Nevertheless, the directional signal gets every benefit of the doubt regardless of its origin.

The next lower objective is a test of 1648.00, WedEX triggers a delayed actively bearish signal, and a daily trend change is underway. All of which now requires a second consecutive lower close for confirmation, or at least no recovery through Friday.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Immediately recovering Friday above Thursday afternoon’s high, above the room for noise around it up to 1666.25, could produce the recovery that Thursday afternoon’s bounce tried, and failed. Lesser strength at Friday’s open could gain traction if 1648.00 were tested overnight. But this being a Friday, the morning’s bias can extend well into the afternoon. And this being expiration, initial trending can gain be predictive of the entire session.[/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.