Market Wrap

If this rally is so strong… then how could Thursday’s intraday new highs have failed to close above prior highs? It doesn’t qualify as a sell signal, but it suggests that the rally’s momentum is waning.

Pattern points… (Setups and technicals)
Thursday’s test of the 1497.25 target proved its relevance in three ways. First, by attracting price 10-1/2 points higher so quickly after the open. Second, by reacting down 11-1/2 points from its test. And third, by leaving oversold RSIs at the reaction’s 1486.25 low, requiring its eventual retest.

The bounce from 1486.25 retraced 61.8% back up to the morning’s 1497.25 target. Bouncing above this natural resistance would have resumed the rally, next targeting 1503.00 and potentially 1512.75. Or, I should say, finally targeting.

But the bounce failed, and closed back under Wednesday’s 1491.00 highs. It was too late and too shallow to signal momentum reversing down, but that’s not the issue. More relevant was that Thursday’s test of the 1497.25 target had not generated sponsorship to close above prior highs.

What’s Next… (Outlook and opportunities)
Since momentum hasn’t reversed down, fresh highs could still test 1503.00 and potentially 1512.75. Neither test is required before reversing down. And neither test would require reversing down. Any rally effort Friday will get a benefit of the doubt until disproved. So, if this rally is ending, then any attempt at fresh highs should be disproved, by avoiding a new high close on a Friday.

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 post-close plunge isn’t recovered overnight… then a correction is underway. Even if Thursday’s open has recovered the market’s reaction to AAPL, the rally is still living on borrowed time.

Pattern points… (Setups and technicals)[pay]
Well, it wasn’t constructive pessimism that stopped Wednesday afternoon’s rally from extending. The 1491.25 overnight high was tested to within 1 tick, and held. If the rally slowed due to anxiousness ahead of AAPL’s post-close earnings release, then it was well-placed anxiousness. As the paranoid say, “sometimes, they really are following you.”

AAPL plunged about 60 points, well below its sub-490 low that was visited too briefly to be a bottom. Now the next lower objective at 462 is being probed by almost $5, probably headed to 455.

S&Ps had ended the cash session at 1490.00, whose recovery 3 minutes earlier would have triggered a hold-long setup. The reaction to AAPL drove the market back to the morning’s 1484.50 low. Globex is opening at lower lows.

[/pay]What’s Next… (Outlook and opportunities)[pay]
It’s difficult giving sellers much credibility, despite their being very productive after the close. Wednesday’s bias environment exit and the final hour entry had trended higher. Signs of topping have been appearing, but the pattern isn’t optimal. Extending down without delay would probably only delay higher highs at 1503.00 or 1512.75, but at this stage the delay would be indeterminate.[/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 post-close earnings are surprising… then can Tuesday’s rally accelerate its pace Wednesday? The upside reaction to the two highest profile releases — GOOG +34 and IBM +8 suggests they lacked optimism. That won’t mean much for the broader market’s rally if it doesn’t also respond aggressively to the “good” news.

Pattern points… (Setups and technicals)[pay]
Tuesday morning’s drop was similar to Friday morning’s drop. Their similarity might also track their resolutions. Both mornings probed negative territory, and their afternoons recovered. Interestingly, each recovery gained more than 10 points, so recovering from Tuesday’s shallower drop was quicker to probe fresh higher highs.

After retracing the morning’s drop, Friday’s recovery had little time remaining to extend higher before the illiquid weekend began. Tuesday’s recovery has three sessions of liquidity ahead of it, and little excuse not to attract broad sponsorship to extending higher.

Considering the lack of traction below, and the very recent upside surprises, hesitating to extend the rally Wednesday would be surprising. Extending, and then reversing down, would be more plausible, but still unlikely to gain traction in forming a top.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Tuesday’s close barely managed to touch the afternoon’s 1487.00 bias-up target. Recovering it at least 3 minutes prior to the close could have triggered a hold-long setup. Already extending higher post-close to 1491.50 does risk borrowing too much from the aggressive follow-through I describe above. [/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 this is a holiday weekend… then there isn’t a Saturday Strategy Session. Don’t hesitate to ask any market questions in the comments section of this post on the blog. Chartroom will be open Sunday evening at the Globex open. I’ll update the blog in case of any relevant price action.

Pattern points… (Setups and technicals)[pay]
The WedEx “late actively bullish” indicator was vindicated by Friday’s expiration afternoon trending upward. Closing above 1474.25 for the second consecutive session confirmed Thursday’s breakout. Closing positive above 1476.00 helped to confirm. The setup all but requires a third higher close, not necessarily consecutive.

There is a potential problem. Closing above Thursday’s 1480.50 high would have helped to confirm, too. Not even touching it would have made its test all but irrelevant, but Friday’s late surge couldn’t help but probe it up to 1481.00. Perhaps it was only expiration noise, but still testing 1480.50 at the close does undermine the confirmation of closing above 1474.25-1476.00.

Regardless of being undermined, the breakout and confirmation get a benefit of the doubt, unless rejected immediately. So, what constitutes “immediately” on a three-day holiday weekend? This is rarely encountered, but gapping down under Friday’s ~1470.00 low would qualify.

Speaking of Friday’s lows… the morning’s dip was attracted down to the prior intraday 1468.00 area “lower prior highs.” The dip to 1470.50 only tested prior overnight highs at ~1471.25. Their retest should find an air pocket that fills the gap back to Wednesday’s 1466.00-1467.00 close.

[/pay]What’s Next… (Outlook and opportunities)[pay]
If the breakout is valid, then 1503.50 is in-play. Having been undermined, perhaps the breakout will produce only one more higher close before failing. Either scenario should play out aggressively, whether extending to the next objective, or else rejecting it to launch a new downleg. [/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 rally satisfied the outstanding consequences… then would another overnight sell-off create more consequences to rally? Probably, unless fresh lows were extended through the open.

Pattern points… (Setups and technicals)[pay]
The consequence for sellers not gaining traction had made a probe above prior highs increasingly likely. And any rally above the 1468.00 area was already likely to be big. Thursday’s pre-open rally was predestined to extend higher intraday.

But the rally wasn’t assured of maintaining its gains. At least, not the relevant portion, above ~1471.25 prior overnight highs. It did, avoiding a pullback signal. Closing above 1474.25 puts into play 1503.50. This must be confirmed by a second consecutive higher close.

Meanwhile, the gap back down to Wednesday’s 1467.75 close wants to be filled. It’s natural to at least visit 1468.50 “lower prior highs.” Their attractions could delay the rally Friday, or even prevent confirming it. Thursday’s late dip to 1475.50 narrowly avoided signaling the dip would extend any lower Friday.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Dipping back to the 1468.00 area would risk gaining traction to reverse more substantially. It would also risk bouncing back enough only to test Thursday’s 1473.50 opening print before reversing down. Wednesday’s frail bearish WedEx indicator was invalidated Thursday, but replace by only a late bullish signal. Look out below if it fails.[/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.