Market Wrap

If not for FT’s taper headline… then Monday’s session might have produced Tuesday’s rally. There had been some firming before the plunge appeared from nowhere. Recovering it into Tuesday’s open was then extended to fulfill upside potential.

Pattern points… (Setups and technicals)[pay]
Potential up to 1646.50-1648.00 was fulfilled Tuesday afternoon. Three tests of 1648.00 each reacted down more than the last, to as low as 1643.50, before closing at 1646.00.

The close was back under the noon hour’s highs, so buyers gained no traction for their efforts. But the close was also above the past several sessions’ highs, so new sponsorship can still arrive to resume the rally.

Since buyers gained no traction on Tuesday, new sponsorship capable of extending the rally must begin by gapping up. Simply trending up, or recovering from an early dip, would be very likely to reverse back down into negative territory before the close.

1654.25-1655.00 is the next higher objective for extending the rally. Otherwise, momentum reversing down would first target 1634.00, and then much lower low. More so, the downleg that does gain traction — and not just retrace for the next rally leg — should be very aggressive.

[/pay]What’s Next… (Outlook and opportunities)[pay]
WedEx will trigger at the close, indicating whether there is a bias into and out of expiration. Whether or bullish or bearish, there is still potential for it to be active, and not passive. But first is the afternoon’s FOMC policy statement, followed by Bernanke’s Q&A 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.

If the market wanted to trend down… then Monday afternoon’s surprising plunge opened the door to beginning that slide. The market did not step through it.

Pattern points… (Setups and technicals)[pay]
Greeting Mondays with extreme sentiment often creates a price extreme. The overnight rally into Monday’s open was quickly restrained by 1636.50, but not reversed. The late-morning probe up to 1641.00 was restrained, but reversed only to retest 1636.50. Sentiment extreme wasn’t necessarily a price extreme.

At least, not immediately. A late-afternoon 16-point plunge down to 1624.00 was triggered by an FT headline warning Wednesday’s FOMC meeting would announce tapering.

Some words about the “plunge.” It never took price into negative territory under 1618.00-1620.00. It barely tested Friday afternoon’s 1625.00 “lower prior high” as support. And it was retraced to 1635.00 — above the open’s gap up.

The close was still testing 1633.00-1634.00, within a few ticks of the prior four sessions’ highs. Perhaps Bernanke will endorse tapering Wednesday. Monday’s plunge in reaction to the headline implies the market won’t like it. The plunge’s recovery suggests the market doesn’t expect tapering to be announced — not before probing a fresh high.

[/pay]What’s Next… (Outlook and opportunities)[pay]
An early fresh high above 1638.25 is now much less vulnerable to reversing down sharply. Monday afternoon’s plunge can resume immediately by gapping down under 1620.00. Otherwise, a test of 1646.50-1648.00 is likely. [/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 decline is only temporary… then can it resume without delay Monday? Yes, but not very strongly — not unless by gapping up on much stronger sponsorship. Otherwise, strong sellers aren’t needed to extend Friday’s decline.

Pattern points… (Setups and technicals)[pay]
Was the latter half of Thursday’s rally less artificial? It was the product of sellers becoming marginalized that morning. But it still created the likelihood for probing fresh highs before failing.

Actually, it did probe a fresh high Friday before failing. But the fresh high was nominal. And the failing was pretty aggressive for a no-bias environment. Yet the failure was pretty productive.

Friday’s reversal down stopped short of retracing 61.8% of Thursday’s rally. That’s too shallow to reject the rally, or to correct it. Extending higher without delay Monday shouldn’t be very productive or durable. Reversing down further Monday would risk gaining traction to resume the original decline.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Try to join us this weekend for the Saturday Strategy Session. It’s at 9:30am ET, linked from the blog’s sidebar. We’ll discuss the bigger picture and individual setups, along with expectations for the next week’s open. And you can request instant analysis of stock charts.[/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 night’s recovery were delayed until Thursday’s open… then would it have extended as high intraday? Probably, although not necessarily the same day. A lot of buying pressure has been expended, either to end the bounce sooner, or to gain important traction.

Pattern points… (Setups and technicals)[pay]
Marginalizing sellers Thursday morning didn’t require extending the overnight recovery. But no one told that to Thursday afternoon’s market. Room for ranging flat-to-higher up to 1621.25, instead triggered buy signals above 1618.00 and 1622.00, including the 1621.25 bias-up signal.

Only one pullback limit was violated along the way up to 1639.50, so buyers aren’t very refueled. They expended a lot of energy exiting the bias environment above the noon hour’s high and entering the final hour even higher, not to be confirmed through the 3:10-3:20 window. And the close settled back under 1638.00 resistance

None of which makes Thursday’s buyers weak hands. Not without also reversing immediately Friday back under either 1621.25 (basis Sep, 1627.25 basis Sep) or 1615.25. Otherwise, extending higher would target 1636.25 and a test of 1642.50, probably up to 1646.25-1647.00.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Expiration is next Friday, so the ES front-month is rolling forward from Jun to Sep. The spread is a 6-point discount.[/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 drop did not resume last week’s decline… then it should be obvious at the open. Even the most bearish scenario could still bounce, but only so much of a bounce can be tolerated at this stage.

Pattern points… (Setups and technicals)[pay]
Wednesday’s drop is a gateway, either to resuming the decline to new lows, or to another sizable bounce. So much selling pressure was expended that either its sponsorship is now rewarded, or else they will be trapped.

The bias environment exit and final hour entry each probed under the noon hour’s 1614.00 low. The 3:10-3:20 window trended down too, expending even more energy, while gaining traction for the effort. Pessimism was being productive, as sellers were attracting reinforcements.

Even a last-minute bounce to 1615.00 was reversed to fresh lows at 1609.50.

But that didn’t qualify for a hold-short setup. The primary concern is the reaction down from 1615.00 did not reverse deeply enough soon enough (under 1613.00). The late bearish setup fulfilled its fresh low objective, but not necessarily sponsored by strong hands.

Nevertheless, the decline gets a benefit of the doubt, so long as 1615.00 isn’t recovered. The next lower support is 1607.00 and 1604.00. Any lower through a relevant timing window would make it only a formality to probe last week’s low down to 1585.00-1590.00.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Having trended down into Tuesday’s close, recovering the afternoon bias environment’s 1621.25 high through the opening 15 minutes of volatility would trigger a “session-long rally.” We’ll discuss that intraday if its trigger is imminent.[/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.