Market Wrap

If the confirmed trend change signal allows sellers to rest… then Friday’s bounce would have refueled them. There is a very eery feeling that a much stronger down move has been stalking the correction off of Thursday’s low, ready to pounce from the shadows now that Friday ended the correction.

Pattern points… (Setups and technicals)[pay]
Almost left outstanding at Friday’s close was the afternoon’s 1515.50 bias-up target. Buyers delayed their aggression until the close. It was a 2-point surge at the cash session’s final minute that fulfilled the target to within 2 ticks at 1515.00.

Buyers were lethargic throughout the afternoon. The 1509.25 bias-up signal had been signaled cleanly, but the balance of the bias environment only ignored it. Not until the last half-hour was the noon hour’s 1512.00 high probed. And, then, only by 1 point, until the final minute.

The afternoon was the definition of range bound. The bias environment was exited within the noon hour’s range, and the final hour was entered with both ranges. The 3:10-3:20 timing window ranged narrowly at a prior high instead of trending through it. This would have been unremarkable if not for being juxtaposed against the overnight rally.

Meanwhile, bonds held up as if Thursday’s buyers weren’t ready to return from their flights-to-safety. No unfinished business above was left outstanding. “Higher prior lows” around 1511.50 and previous critical support/resistance at 1515.00 were retraced. Having trended up into Friday’s close, immediately breaking back under Friday afternoon’s 1508.75 low would trigger a session-long decline. Recovering 1518.00 instead would extend the corrective rally to 1526.00.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Join us for the Saturday Strategy Session at 9:30am ET. There will be a lot to discuss, including this week’s trend change signal, and many high-profile stocks that have been affected. Or, the other way around.[/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 drop confirms Wednesday’s trend change signal… then does that preclude Friday from rallying? No, it just limits the extent of what would be only a corrective bounce that refuels the decline. Recovering too much too quickly could still invalidate the trend change.

Pattern points… (Setups and technicals)[pay]
Did Thursday afternoon’s bounce already relieve pent-up buying pressure that might have sponsored a more durable recovery Friday? It originated from 1495.00 when the bias environment started lapsing at 2:30 and recovered back to the morning’s 1504.25 first sell signal. It was retraced down to 1499.00.

1499.00 measured 61.8% of the 1495.00-1504.25 bounce, a healthy retracement that would have been bearish if broken. But retracing that much of the bounce signaled the pent-up buying pressure was already done. Recovering Friday back above Thursday’s highs would require new sponsorship to gap up above 1511.00.

Meanwhile, Wednesday’s trend change signal was confirmed by closing again under 1511.50 Thursday. Invalidating it at this stage requires gapping up Friday above 1517.50 to serve by proxy as if Wednesday’s close had recovered 1511.50. Otherwise, the signal’s minimum objective is one more lower close, if not a retracement back to the last relative low (under 1400.00).

[/pay]What’s Next… (Outlook and opportunities)[pay]
If Friday’s open doesn’t gap up enough to reject Thursday’s sellers, then be on guard for selling pressure from longs that were planning to exit in the afternoon. The scent of another downday, and only hours remaining in the week, could entice sellers that wouldn’t have acted otherwise. The vicious circle of combining the artificial selling pressure with the morning’s accelerated sellers could be very productive. The weekend’s impending illiquidity cuts both ways,  and gapping up enough Friday’s to reject Thursday’s sellers could extend sharply higher 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 buyers were compartmentalized at the top one day earlier… then is it possible that Wednesday’s sellers were compartmentalized, too? In other words, is it possible for the big drop to start bottoming already?

Pattern points… (Setups and technicals)[pay]
In the morning’s Market Tour, I discussed the optimal setup for a top, which involved probing fresh highs. Of two other setups, the least likely was to trend down enough to close under prior lows. That’s also the least reliable setup, since it required trending down substantially, and expending an awful lot of selling pressure.

Of course, the least likely setup formed. Wednesday’s drop from 1527.50 closed under Friday afternoon’s 1511.50 prior low to signal a trend change.

What would invalidate the trend change signal? A second consecutive close under 1511.50 Thursday would confirm (notice that this condition differs from being a second consecutive lower close). A signal is most vulnerable to being invalidated when it is at its freshest. Also, Wednesday’s drop fulfilled a lot of selling pressure at its 1509.00-1511.00 objective. There is potential down to 1501.00 intraday — but no requirement to test it, and no assurance of avoiding a recovery from it.

1515.00 support had been chipped away already, and we knew before Wednesday there was no bullish reason to revisit it. Now that it has been probed again, opening back above it Thursday would suggest the probe under it had been absorbed. It is otherwise resistance — up to the 1518.50 area — with another resistance level at 1526.00. Their tests might undermine Wednesday’s trend change attempt, but still not prevent another attempt.

[/pay]What’s Next… (Outlook and opportunities)[pay]
This week has been an unusually light economic calendar. Even if it were heavy, Thursday’s schedule would still stand out. Look for the market to be especially volatile… again. [/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 sellers don’t retake control before too late in the day… then they could be marginalized for the balance of the session. There’s always a path down anyway, but not unless clearly signaled. That tactic once again kept alive the rally through Tuesday. Let’s see if sellers are still marginalized Wednesday.

Pattern points… (Setups and technicals)[pay]
The rally’s relentlessness may seem frustrating, but it did what it was required in order to prevent sellers from gaining traction. And when new highs are involved, simply avoiding a reversal down can equate to extending the prevailing uptrend.

For example, the bias environments avoided being exited back under a prior low. It was actually trending upward. It marginalizes sellers if they don’t regain control without delay, but it doesn’t necessarily extend immediately. Nor does it prevent a dip, a slip, or even a slide. Waiting so long before trying to reverse down only undermines the effort. In fact, a dip out of Tuesday’s stronger bias environment was short and shallow, and recovered to fresh highs.

That dip was only 2 points from 1528.00, but it wasn’t noise. Its low tested 1526.25, which was the afternoon’s bias-up signal. Probing above it during the no-bias environment required its retest, and now that attraction below has been neutralized. There is no bullish reason to revisit it, so revisiting it could be a problem for the rally. So would reversing down from fresh highs.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Gapping down to open around 1525.50 would still likely recover to probe fresh highs. But another reversal down would be likely from 1531.50-1533.00. Only opening under 1525.00 would start to take fresh highs off the table… for the day.[/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 expiration’s influences interfered to prevent Friday from trending… then did it undermine sellers, or buyers? Sellers made more attempts, diving twice, recovering twice. Those recoveries represented buyers expending energy. They held support, but didn’t gain traction for their efforts.

Pattern points… (Setups and technicals)[pay]
Expiration sessions tend either to trend, or die on the vine. Rarely is there a “happy” medium of choppy ranging. But Friday’s expiration ranged choppily — probing above 1 point above Thursday’s high to 1521.75, and attacking Thursday’s low to within 2 ticks at 1511.25 — ending the day by barely touching Thursday’s 1518.50 close.

That’s the fourth consecutive session of closing about 1 point either way of 1517.50. It’s also the third consecutive session to probe temporarily under 1515.00 “lower prior highs,” but not then extend back above prior highs. The first dip Wednesday could have extended its recovery through Thursday’s close to be bullish. The second dip Thursday could have extended its recovery immediately Friday to be bullish. But after closing almost unchanged Friday despite recovering from under support, patient sellers are starting to look like very strong hands.

Friday was also interesting for failing to close at new highs, which is a common tactic for rallies to entrench their momentum into the following week, so that an interim dip could be easily absorbed. Not closing at a new high may undermine buyers, but not closing at a new high despite probing fresh highs intraday reveals that buyers are undermining themselves. That’s the opposite of a self-preservation tactic.

Like Thursday’s bearish close, a “hold-short” setup was missing only a trigger. Having failed to trigger Friday, now there is room down to 1509.00 before signaling momentum is reversing down. Any shallower dip would be no less capable of recovering were than last week’s shallow dips. And any higher high that gains traction would target 1533.00

[/pay]What’s Next… (Outlook and opportunities)[pay]
There is no Saturday Strategy Session on a three-day weekend. But please don’t hesitate to post any questions or chart analysis requests to this blog post. The Chartroom will re-open Sunday night with the Globex open. [/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.