Market Wrap

If Wednesday afternoon’s rally had extended any higher any earlier… then it could have recovered all of the drop from Tuesday’s close, instead of just the drop from Wednesday’s open. That’s a lot of buying pressure to expend without gaining traction for the effort. That buying pressure will be sorely missed if the following open doesn’t immediately compensate for the delay.

Pattern points… (Setups and technicals)[pay]
Wednesday was the second consecutive afternoon whose template suggested the bias environment would resolve aggressively. So, it was also the second consecutive afternoon not to resolve aggressively. Each remained range bound through the close.

Their setups differed, but two similar consecutive resolutions (a non-resolution is still a resolution) reflects a great deal of stored energy. There is a great likelihood for gapping open Thursday either sharply higher or sharply lower.

Gapping down is slightly likelier, since a sell signal was triggered under 1687.50. It was triggered upon exiting the position-squaring window, which is not optimal, but it does get a benefit of the doubt.

Gapping up is likely otherwise. The afternoon’s 1689.50 high was also the morning’s high, so its obligatory resistance may have been responsible for inhibiting Wednesday afternoon’s rally. There is no unfinished business below, and two attractions above — one of which is a new high.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Wednesday’s close narrowly avoided qualifying for a hold-short. That doesn’t prevent trending down overnight, but it should caution against buying weakness.[/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 drop had extended a little lower… then could it have already begun recovering before the close? That’s essentially the message being sent by not yet extending nor reversing the morning’s drop, despite leaving unfinished business above.

Pattern points… (Setups and technicals)[pay]
Tuesday morning failed to dodge tapering comments from one Fed head, quickly diving to discount the “news.” Fearing more of the same from other Fed heads soon to speak rightly kept the market under pressure. The market stopped falling before they stopped talking. But it never recovered.

The drop did recover from probing under “lower prior highs” at 1692.00-1692.50. Holding their test prevented sellers from gaining traction for their efforts. That, and closing above the morning’s 1688.75 low, not to mention the noon hour’s low. Meanwhile, new unfinished business above was created at the gap back up to Monday’s 1702.50 close.

Buyers didn’t gain any traction, either. Recovering Wednesday without first extending the dip would require gapping up, probably above Tuesday’s 1698.75 opening print — presumably to neutralize unfinished business outstanding above at 1706.00. Extending down first is a little likelier, in order to neutralize oversold RSIs at Tuesday morning’s 1688.75 low, presumably to 1687.00.

[/pay]What’s Next… (Outlook and opportunities)[pay]
This Wednesday’s econ calendar isn’t irrelevant, and it’s difficult to see any more tapering comments being anything but more of the same.  But the burden of proof is on buyers, nonetheless.[/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 high were just 1 tick higher… then it would not be considered an inside day. That’s not in itself bullish or bearish. But after consolidating narrowly the prior day, and still not confirming the previous day’s breakout, it does suggest the rally’s sponsorship is thin.

Pattern points… (Setups and technicals)[pay]
Monday’s range bound session did accomplish one thing toward defining the bigger picture. And it did that simply by touching Friday’s 1705.00 high. Actually, by only touching Friday’s high.

Monday’s open tested the 1698.50 bias-down signal to within 1 tick. Its recovery retraced all the way back to Friday’s high, and only touched it. The obligatory resistance triggered the predictable pullback. But the pullback never recovered.

Obligatory resistance that lasts through multiple timing windows has more relevance. Eventually breaking higher would be that much likelier to react back down under 1705.00 before extending too far, for too long. This will be important to calculating a breakout’s ultimate objective.

[/pay]What’s Next… (Outlook and opportunities)[pay]
The attraction to 1705.00 cuts both ways. In case breaking higher were further delayed by dipping deeper Tuesday — perhaps to neutralize the oversold RSIs at Monday afternoon’s 1699.50 low — then 1705.00 would likely attract price back up to it. [/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 it’s Saturday… then it’s time for the weekly Saturday Strategy Session reminder. Please join us at 9:30am ET, from the link found in the blog’s sidebar.

Pattern points… (Setups and technicals)[pay]
Not that sellers put up much opposition Friday, but buyers at least were patient. The Employment Situation report’s 8-point plunge was modest, only testing Thursday’s 1696.00 post-open low. Optimists would have been excused for their excitement, but a relief rally wasn’t obvious soon after the open. So there was no morning rally, at all.

Buyers repeated their patience later after recovering to range around unchanged at 1701.00-1702.00. The narrow ranging continued around unchanged for several hours — well into the final hour.  Buyers didn’t remain patient through the close, which was met by a last half-hour surge through Thursday’s highs. Bullishness lost some of its potential.

Patient buyers are the market’s source of potential bullishness. So long as sellers gain no traction for their efforts, pent-up buying pressure can keep the trend alive. “Unfinished business above” is also a form of potential bullishness, attracting price higher. Friday’s “unfinished business above” at 1706.00 was attacked to within 1 point, losing some of its potential, too.

One more potentially bullish factor is a breakout, like Thursday’s sudden rally out of a range to close above prior highs. A second consecutive higher close would confirm, as did Friday’s close 1704.50. But that is within 3 ticks of Thursday’s prior high, which doesn’t reflect quite as much buying pressure as a confirmation could. That’s a little less potential in the bullishness.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Friday’s same narrow margin of victory to confirming Thursday’s breakout is less relevant to producing a new trend high close. Trends tend not to peak into a weekend, so Friday’s new high close suggests that an immediate pullback would recover for at least one more new high close. And an immediate pullback would not be surprising, with bullishness having lost so much potential on Friday.[/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 breakout were valid… then it should have expended more buying pressure, or less. Instead, closing AT the rally’s highest calculable objective makes Friday vulnerable either to reversing down, or to ranging widely.

Pattern points… (Setups and technicals)[pay]
Thursday’s session behaved like a session-long rally. Wednesday afternoon’s high had printed after the bias environment, so Thursday’s gap up above it did not qualify. But the almost every one of Thursday’s timing windows probed a fresh high. And the session high printed during the final hour.

Every one of Thursday’s timing windows also overlapped the others. Probing higher highs intraday without extending higher is not trending. It is weak-handed, if not actually distribution. But it is not strong-handed trending.

So, it’s not surprising that 1701.50 held as resistance through the close. It is the current rally leg’s highest calculable objective. Its recovery would have put into play 1731.00-1733.00. That doesn’t change Thursday’s new high close from being a breakout above prior highs — it just makes it unlikely to be confirmed by a second consecutive higher close Friday.

If the rally were to extend higher anyway, then its sponsorship is weak-handed, and intolerant of any hesitation. A very steep slope would be likely until the objective was met.

[/pay]What’s Next… (Outlook and opportunities)[pay]
A favorable reaction to Friday’s reaction to the Employment Situation report that doesn’t reverse down before the open is likely to trend up relentlessly intraday. Gapping down under prior highs would not be required to extend down, but a reaction up to Friday’s 1697.00 lower-end would likely hold. [/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.