Market Wrap

If not for the Boston incident… then would there have been an entirely different resolution to Monday afternoon’s recovery attempt? The 7-point bounce had reached the precise crossroads where it could become a recovery, or remain a bounce.

Pattern points… (Setups and technicals)[pay]
Monday morning’s ranging at or under Friday’s 1574.00 never gained traction itself. Its recovery coming out of the bias environment would have left no unfinished business below to inhibit retesting last week’s high. Monday’s noon hour slide fulfilled the air pocket under 1569.50 down to 1561.25. Its reaction up formed a potentially bullish pattern.

That potentially bullish pattern is a Complex Descending Triangle, described in the blog post titled, “Do, or Die.” And that’s what it was, because recovering from 1556.00 to the Triangle’s 1563.00 upper-end would either extend substantially higher, or else resume the decline to new lows.

A little natural weakness at 1563.00 was soon accelerated by the news from Boston. Two fresh lows under 1556.00 indicated that it was not a knee-jerk reaction down. The cash session extended to 1546.50, futures extended to 1538.75.

The probe under 1555.50-1556.50 is trying to seal a top. A second consecutive lower close Tuesday would confirm. There is meanwhile room for a bounce back up to 1569.50 before Monday’s drop can again be considered as part of a temporary pullback.

[/pay]What’s Next… (Outlook and opportunities)[pay]
The last-minute move two Fridays ago had surged up to 1548.50-1549.00. Its close is 1-2 points lower. And that’s the lowest close since the prior high. So, Monday’s close was testing it, potentially triggering a trend reversal. It would be credible if Tuesday’s close were negative, and under any prior low that was probed intraday.[/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 breakout were going to be invalidated… then Friday’s probe under Wednesday afternoon’s lows was the opportunity to do it. It didn’t. But closing Friday under Wednesday’s high isn’t reassuring, especially with so much unfinished business below left outstanding. Between the prior Friday’s gap down, and last Monday’s no-bias trending, these new highs seem tentative.

Pattern points… (Setups and technicals)[pay]
The only time Friday spent above Wednesday’s 1584.25 highs was during the first half-hour. And then, only briefly. More time spent under Wednesday’s 1579.50 noon hour low, but it held as support through the close. The opportunity to invalidate Thursday’s confirmation of Wednesday’s breakout was attempted, but it failed.

That doesn’t mean the rally will resume without further delay. Or without further decline. Buyers did not gain traction for their afternoon efforts Friday, or for absorbing the morning’s drop, so a fresh low could print in even the most bullish scenario — the difference between that, and the most bearish scenario, is that Monday’s close would likely recover.

Closing back above Wednesday’s 1584.25 highs would have trapped shorts. But Friday’s noon hour and last-minute attacks on 1584.25 did not extend higher. Although Friday’s 1575.00 low doesn’t require a retest, it will probably be probed by any morning weakness Monday.

Avoiding a retest of Friday’s low is possible, but probably only if a rally were underway already before Monday’s open. Opening above 1586.50 could avoid backing-and-filling back into Friday’s range. While the rally would be expected to probe new highs, the retest would be much likelier to hold.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Join us this weekend for the Saturday Strategy Session. Bring your stock ideas for instant analysis after we discuss the market’s bigger picture, and the week’s opening strategies. [/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 confirmation isn’t valid… then we’ll know immediately at Friday’s open. Not extending higher immediately wouldn’t necessarily be bearish, it could even be bullish. But launching a downleg anytime soon would require that this week’s rally be somehow invalidated.

Pattern points… (Setups and technicals)[pay]
Thursday’s rally confirmed Wednesday’s breakout with a second consecutive higher close. The minimum requirement for the setup is to produce at least one more higher close — not necessarily in the very next session. In case of an immediate drop, with one exception*, the drop would be expected to recover.

The session high printed Thursday morning. The afternoon’s downtrend of lower highs and lower lows formed a Flag. The pattern tends to break higher to resume the rally without further delay. When the pattern breaks lower first, it is likely to recover.

*Since the Thursday’s confirming session printed its high during the morning, the confirmation could still be invalidated. Opening under Tuesday’s 1584.25 highs, then extending under its 1579.50 noon hour low, would be as if the rally never extended. Downside objectives would include 1574.50, and potentially 1569.50 or 1561.25. Extending the rally would target 1612.00 and higher..

[/pay]What’s Next… (Outlook and opportunities)[pay]
Thursday was the third consecutive session without the customary so-called 3:30 ramp. That’s not a technical issue, and the ramp is probably just psychological (if not mythical). But that’s enough reason to take note of a potential sentiment shift.[/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 FOMC Minutes leak were not revealed Wednesday… then would the morning’s rally have been so substantial? Did leaking the FOMC Minutes Tuesday encourage selling that lessened supply and resistance? Confirming Wednesday’s breakout would suggest the majority believes the rally is self-sustaining. Not confirming the breakout would be more realistic.

Pattern points… (Setups and technicals)[pay]
One of the most relevant elements of last week’s trend change signal was the repeated probes above 1565.00 being rejected so abruptly. Wednesday’s pre-open knee-jerk reaction to the FOMC Minutes news was a probe under 1565.00. And that’s the last time we heard of that.

The likelihood for probing a fresh high was fulfilled, and then it was extended enough to renew the bias-up signal. While that precluded there being a Wednesday Wreversal into negative territory, the door remained open to a corrective dip. The dip never came.

Pullback limit tests continually held, extending the rally to fresh highs at 1584.25. Only the afternoon bias environment’s exit actually violated a pullback limit, dipping down all of 4 points to 1580.25. Sellers did not gain traction on the close.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Wednesday’s session was a breakout. Like Wednesday, the bearish path would reverse down early from probing fresh highs. A second consecutive higher close Thursday would confirm Wednesday’s breakout. Only gapping down back under 1565.00 Thursday would invalidate the breakout — not very likely, only very damaging.[/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 everyone imagines hearing a tree falling in the forest… then did it really fall? The “customary” 3:30pm buying spree didn’t happen Tuesday. It’s unknown whether that was because price had already rallied substantially intraday, or because the price rise had already discounted the spree’s effects — or simply because it’s not such a custom, after all. In any case, it happened within only a couple of points from new highs.

Pattern points… (Setups and technicals)[pay]
Last Wednesday’s trend change signal has been productive, but only for one day. Tuesday’s retest of prior highs threatened the trend change signal by probing the 1568.00 prior high. Buyers didn’t gain traction for their effort, closing back under the last upleg’s same 1556.00 and 1566.25 targets. Their previous rejections resolved in a trend change, and the interim recovery has been done on low volume, so the trend change remains intact. On life support, but intact.

A close above 1568.00 would require that a new trend change be signaled by closing back under Friday’s 1533.25/1547.50 prior lows. As it is, reversing back down without a new high close — in the currently active signal — would be likely to extend down at an accelerated pace.

Retracing Monday afternoon’s no-bias trending from 1548.00/1550.50 remains unfinished business below. Tuesday morning’s dip kept the door open to that being retraced without the extra detour to new highs. We’ll keep that door open mentally Wednesday just in case, but the delay makes the retracement unlikely before Thursday.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Meanwhile, Tuesday afternoon’s 2:30 bias environment exit was interesting. It trended back up to session highs at 1568.00, which marginalizes sellers for the balance of day. But that wasn’t exploited, and the entire bias environment was retraced back under its 1564.75 origin. Sellers didn’t gain traction — they were marginalized — so a fresh high Wednesday would not be surprising. But the burden of proof will be on buyers to maintain 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.