Market Wrap

If this week wanted to duplicate last Wednesday’s intraday reversal… then Tuesday’s reaction down could not have offered a better opportunity. So, unless Tuesday’s reaction down were the first half of a two-day setup, another strong morning rally could soon be underway.

Pattern points… (Setups and technicals)[pay]
Despite closing in positive territory, buyers only prevented sellers from regaining traction Tuesday. The afternoon’s bounce out of the bias environment’s 1653.50 lows never got aggressive while extending up to 1661.00. Room up to 1662.25 was hardly attacked. A sell signal at 1659.00 was avoided until too late to trigger.

Price did dip, back to within 1 tick of the bias environment’s 1653.50 lows. An hour-long rally was retraced in half the time.

But the late drop was no more relevant than the bounce preceding it. Each originated too late to gain traction for its effort. And the last effort to waste its time was the post-close drop.

This doesn’t preclude sellers from being immediately productive at Wednesday’s open — Tuesday’s late drop did not probe a fresh low and recover it, so sellers did not extend themselves. By the same token, if Tuesday’s 20-point intraday drop doesn’t attract strong selling sponsorship early Wednesday, then at least a retest of Tuesday’s high becomes likely.

[/pay]What’s Next… (Outlook and opportunities)[pay]
The only unfinished business left outstanding is below at the gap back to Friday’s 1648.00 cash session close. Its test would be considered bearish if the timing window testing it failed to recover above 1651.00. Meanwhile, if that unfinished business below couldn’t attract sellers early Wednesday — in addition to Tuesday’s deep retracement — then this week could still print new highs. [/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 early drop actually trapped shorts… then Friday afternoon’s highs should have recovered positive territory. And the recovery should have accelerated and extended at least once, if not twice. But it only firmed back toward Thursday’s highs, forming an “inside day” — probably delaying the fireworks until more are available to participate.

Pattern points… (Setups and technicals)[pay]
Friday’s “inside day” means nothing to the bigger picture. And it means everything.

It means nothing because Friday trending is often contrary to the ultimate resolution. Extending the open’s drop under Wednesday’s 1634.50 low would have been productive — if it had extended lower during the morning. Anything later when volume has tapered off is probably not sponsored by strong hands.

At the same time, Friday’s inside day means everything. The market could have dealt shorts a devastating blow by trapping shorts with a later dip under 1634.50. But the opportunity was not exploited. More so, much of the session was spent firming, instead. And more more so, the firming gained no traction for the effort.

No traction was gained for firming back to only 1643.00 at noon, back to 1646.00 at 1:20-1:30, or to 1648.00 during the bias environment. All the while, the rubber band was being stretched more tightly.

None of which requires the decline to being without delay. But Friday morning’s temporary selling effort and its unproductive buying effort still suggest that the decline’s eventual resumption will be aggressive. Gapping up sharply could would be the only path higher, and trending down sharply is the only path lower, when intraday buying gains no traction.

[/pay]What’s Next… (Outlook and opportunities)[pay]
This being a holiday weekend, there is no Saturday Strategy Session. Have a very safe and happy holiday![/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 open isn’t gapping… then would aggressive sponsorship be any likelier to appear later in the morning? Probably not. Early aggressive trending would still be vulnerable to reversing direction intraday. But not trending early would be vulnerable to not trending at all intraday.

Pattern points… (Setups and technicals)[pay]
Thursday morning’s corrective bounce potential was camouflaged. Rather than open flat with Wednesday’s close, or around it, the post-open bounce came from sharply lower levels. Sharply lower levels that were probed thoroughly overnight, and then again after the post-open bounce.

Let’s call that 1637.00, plus or minus.

Higher highs during the afternoon tried repeatedly to probe above resistance. Let’s call that other end of the spectrum 1651.00, also plus or minus.

Thursday offered equal opportunity to expend all available selling pressure, and all available buying pressure. First, a test of “lower prior highs” was only attempted, and only overnight. Then, multiple resistance levels were tested from below — from “higher prior lows.” to gaps, and also targets of Wednesday’s decline. All held.

Trending is difficult ahead of a three-day holiday weekend. Counter-trending is easier. Aggressive trending at Friday’s open could reverse through the afternoon if relevant resistance or support were met early enough. A slower start would still be able to extend, but less likely to reverse intraday.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Gaps cannot be discounted. An opening gap is almost required Friday, since Thursday afternoon didn’t improve upon the morning’s rally — gapping would compensate for having delayed the resolution. So, not gapping beyond Thursday afternoon’s range could be an early indication of a range-bound 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 Wednesday morning’s rally were not so excessive… then would its reaction down have been more subdued? Sure. Wednesday’s reaction down. But the reaction down — when it comes, as this might be — will have a long way to react down. More than any single session could produce.

Pattern points… (Setups and technicals)[pay]
All the makings of a top and reversal, right? Mostly. Some of the bigger points are:

1671.25 target that was triggered above 1654.50 met and held through the close? Twice, in two consecutive sessions, not even counting a third that came within 3 ticks.

Rally above 1627.25 consolidation qualifies as a “blow-off bubble?” Even before Wednesday’s stunning intraday swing.

No unfinished business left outstanding above? Overbought RSIs at Wednesday morning’s 1685.75 high weren’t fully retested, but the structure containing it was neutralized up to its 1681.00-1682.00 target.

Unfinished business below left outstanding? Oversold RSIs at Wednesday’s 1646.50 low require a retest. It could be neutralized overnight.
As for breaking under every relevant low tested intraday? Well… 1648.50 and 1646.00 that contained last Thursday afternoon’s dive were retested Wednesday. They were still being tested at the close. Their eventual break is likely, but could initially produce a bounce.

The same session that produces a new trend extreme is precluded from triggering a trend reversal signal. Stay tuned…
[/pay]What’s Next… (Outlook and opportunities)[pay]
A lot of selling pressure has been expended, but so far only to retrace weak-handed buying pressure. That doesn’t better enable extending down, at least not immediately.[/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 fresh high were not distribution… then the close should not have been back under prior highs. Rally early, rally often, or else start showing signs of reversing down.

Pattern points… (Setups and technicals)[pay]
Monday afternoon’s 1668.75 bias-up signal triggered cleanly at 1:20. It was not invalidated at 2:30. Despite piercing it momentarily, its support held through 3:00. The bias-up was valid, and its 1673.75 bias-up target becomes unfinished business above.

Does it matter?

The bias-up target was met within 3 ticks, which suffices for fulfilling it. At least, reversing trend downward would leave no “unfinished business above” — especially since oversold RSIs and ultimate targets were all tested by Tuesday’s high.

So, it’s really just a nuance.

Tuesday’s close did dip down, away from the bias-up target and back under the bias-up signal. But it still didn’t produce a negative close. That saves the market from a sell signal. It’s still vulnerable to reversing down — again, no unfinished business above, closing under relevant levels — but we’re still one step away from a sell signal.

That can be a big step.

Being so close to signaling that momentum is reversing down, and yet NOT signaling momentum reversing down — rallying instead — could be very bullish. This is still a major inflection point around 1671.25. And the resolution is nearing.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Berananke’s testimony and FOMC Minutes will keep the recent QExit rope-a-dope in the spotlight.[/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.