Market Wrap

If sellers aren’t really neutralized… then Tuesday’s slide won’t be retraced much higher or for very long after Wednesday’s open. Monday and Tuesday’s early rallies failed as they should have, but another failed rally with participation dwindling ahead of the holiday, could slide sharply lower.

Pattern points… (Setups and technicals)[pay]
Tuesday afternoon’s no-bias trending became very productive, extending under 1611.25 to 1600.25 in reaction to headlines. Its retracement peaked about 2 points short, leaving outstanding the retest of 1611.25 and possibly 1613.00.

Meanwhile, a second consecutive session rallied early, and was ultimately retraced. Tuesday’s close was back under Friday’s 1609.50 highs, and above Monday’s 1606.00 low. I would consider the potential Pavlovian response this pattern may be conditioning, but the holiday’s impending illiquidity renders that moot.

Wednesday’s early 1:15pm ET close means that any predictability will all but disappear by late-morning. The morning’s econ reports can offer some opportunities, but beware of holding or establishing any later position.

[/pay]What’s Next… (Outlook and opportunities)[pay]
If you’re leaving early, or already gone, have a safe and happy holiday. I’ll comment if merited by price action Wednesday night or Thursday. But Friday is a full day, and it begins with the Employment Situation report.[/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 Sunday night’s rally intended to gain traction… then it should have allowed a pullback during the morning. Instead, that time was spent treading water, expending buying pressure just to maintain the gain, delaying the drop until the afternoon. Now extending the rally depends upon immediately recovering Monday afternoon’s drop.

Pattern points… (Setups and technicals)[pay]
Sunday night’s rally all but rejected Friday’s drop from its 1609.50 highs. Surging higher to 1620.00 through the open all but promised to marginalize sellers. The path down from a morning rally was obstructed by several hurdles.

But buyers never gained traction.

The morning surge peaked at 10:15, its overbought RSI was later neutralized. The afternoon’s no-bias environment fell as far as possible without expending selling pressure ineffectually under its 1612.50 bias-down signal. And the bias environment lapsing at 2:30 was greeted and followed by waves of previously pent-up selling pressure.

More pent-up selling pressure will be needed to do any more damage.

Closing at or under Friday’s 1609.50 highs does maintain the bearish scenario, keeping alive potential for Monday afternoon’s slide to retrace back to Friday’s 1594.25 low. But Monday’s late low fulfilled the afternoon’s 1606.00 bias-down target, and then bounced sharply. Not resuming the decline immediately Tuesday — this close to the holiday’s illiquidity — could marginalize sellers until Friday.

[/pay]What’s Next… (Outlook and opportunities)[pay]
The late reaction up from the 1606.00 bias-down target was testing Friday’s 1609.50 highs into Monday’s close. Anything short of gapping up sharply Tuesday would suggest that sellers weren’t marginalized. At least, so long as Monday’s drop were to extend down sharply through Tuesday’s bias timing window. Meanwhile, having reacted up from 1606.00 Monday, Tuesday’s open is just as vulnerable to gapping up and extending higher. [/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 Friday’s late plunge were up instead of down… then would the rubber band have been stretched even further? Perhaps not, with that indicating a close above relevant resistance. Now the recovery requires recapturing Friday’s late plunge, and then extending as much higher. The alternative could be more damaging than just a plunge.

Pattern points… (Setups and technicals)[pay]
Friday’s action was an interesting juxtaposition to the three prior consecutive sessions. Each had gapped up and ranged exclusively in positive territory. The two most recent sessions had avoided overlapping the prior day. Friday’s pattern gapped down and probed the two-day old session. Bouncing back into the interim range never recovered a prior high.

The most important similarity is that Friday’s pattern also left outstanding no unfinished business above. Of course, that means something different for a day that defends its gap down, than it does for a day defending its gap up. But buyers gained no traction for their efforts.

Buyers gained no traction for their efforts in any of the three consecutive gaps up. But they stretched the rubber band tighter and tighter. And they left no “lower prior high” untested on the way up, creating an air pocket for the way down. Friday’s opening and closing slides were examples of air pocket behavior.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Friday’s close was back in or under 1598.00-1600.00 support. here was no bullish reason for retracing so deeply, but not closing under it by more than 3 ticks prevented considering a hold-short setup. A short-at-Sunday night’s open could still be considered if there is any hint of extending almost any lower.[/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 three days with trading negative isn’t bullish for Friday… then it must be bearish. And whichever it is, should be obvious soon after the open — especially on a Friday.

Pattern points… (Setups and technicals)[pay]
Two consecutive sessions had gapped up. Despite immediately peaking, each of their final hours had probed fresh session highs. The market’s Pavlovian response was primed for Thursday’s third consecutive gap up, which trended higher without delay.

There is something reassuring about a market that provides Pavlovian responses on cue. At least, for the first response. Eventually, a market that allows itself to be conditioned is soon lulled into complacency.

That might be where Thursday’s market left us: A third consecutive gap, immediately fulfilling its 1607.00 target at the opening print, retracing only the post-open gain through the close. Four days without touching negative territory, and a weekend’s illiquidity just hours away. What possibly could go wrong.

[/pay]What’s Next… (Outlook and opportunities)[pay]
In Thursday’s Market Wrap we discussed the lack of “lower prior highs” that leave an air pocket below, which would make worse almost any dip into negative territory under 1606.25. And being a Friday, any early strength must still outlast the open — preferably recovering at least 1616.00 — to avoid the same downward fate.[/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’s late dip had reversed down from any higher… then sellers might have gained traction into the close. But the afternoon’s shallow probe of higher highs reflects patient buyers, and potentially higher highs.

Pattern points… (Setups and technicals)[pay]
Tuesday’s template was repeated Wednesday in almost every relevant way. 1. An overnight rally 2. extended into the open 3. and got ahead of itself, 4. requiring a corrective dip 5. that was recovered to a fresh session high 6. during the final hour 7. that was rejected into the close.

There are differences, like Tuesday’s pattern overlapping the prior day while Wednesday’s did not. But the two are similar enough that they should now resolve differently.

Where Wednesday’s open could gap up to Tuesday’s high and still reverse down, Gapping up Thursday would all but ensure extending higher intraday. Gapping down Thursday is also possible, but less likely to reverse the trend down if not substantial. Gapping down relatively little Wednesday would have been bearish.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Extending the rally would next target 1607.00. There is no assurance that it would necessarily be the bounce’s peak. Closing above 1598.00-1600.00 would have left 1607.00 actively in-play, but closing under 1598.00-1600.00 means only that this bounce — whether or not extended to or through 1607.00 — is only a correction, and the previous downleg will resume.[/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.