Market Wrap

If there really is a FOMC policy announcement Thursday… No. only FOMC Minutes. Still high-profile news, coming one day after a gargantuan two-day rally, and one day prior to the monthly Employment Situation report — all while being so close to new highs, and to the next higher target — then is it still possible to attract buyers with more good news? More important, of course, is what happens if the good news isn’t.

Pattern points… (Setups and technicals)[pay]
Wednesday’s open had rallied to all but prevent sellers from regaining control. “Trending” down from 1452.75 to test 1444.50-1445.50 had ranged too narrowly for any deeper pullback. Lower lows weren’t needed to trap more shorts, and no momentum was available for a deeper drop.

Finally, while exiting the afternoon’s bias environment after 2:30, another rally leg emerged. Its slope and degree compensated for any delay, testing 1455.00 before the close.

New highs above 1461.00 remain in-play. Its test should include 1464.25-1465.50, assuming that 1447.00 isn’t broken as support. At this stage, closing Thursday back under 1441.00 might be the only way to end the rally.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Probing the morning’s high would have been likely to reject it Wednesday afternoon. Waiting until Thursday to probe would still be vulnerable to rejection. Having probed above Wednesday morning’s high, a test of September’s high Thursday morning would be likely to be rejected So, extending higher without delay and optimistically avoiding a pullback may actually be bearish.[/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.

HAPPY NEW YEAR’S!… Best wishes to you as the old year passes, and the new one begins.

Pattern points… (Setups and technicals)[pay]
There’s no arguing with the 35-1/2 point rally from Monday’s pre-open lows. Friday’s tests of 1383.50 and 1390.00-1391.00 appear to have been relevant. Testing them after the close instead of intraday helped to identify sellers as being weak-handed.

Monday afternoon’s last rally leg was similar. Its 1422.50 target was tested at the cash session close.Any probing above it — to nearly 1426.00 — was post-close, and weak-handed. Buyers expended all available energy without putting into play any higher objective.

Of course, new highs are not a sell signal, just as on Friday, new lows were not a buy signal. There must first be a reversal signal. That is at least under 1413.50, with room down to 1403.00 before suggesting a bigger reversal underway.

Otherwise, new sponsorship is needed to extend the rally higher. That can come from refueling buyers with a dip, or by impatient buyers forcing a gap up. Near-term resistance at 1431.00 or the 1440.00 area need not be met, but the resolution to their test(s) would be telling.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Globex does resume trading ES until 6:00am ET Wednesday morning. Friday’s close discounted the weekend’s (lack of) progress in fiscal cliff negotiations. We should know with Europe’s open(s) whether Monday’s close discounted interim developments. [/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 post-close plunge was weak-handed… then Monday’s open should be very obviously bullish. Friday’s plunge was so substantial, that not rejecting it by Monday’s close would have implications that impact the market for weeks to months. It could be rejected at Monday’s open.

Pattern points… (Setups and technicals)[pay]
There is a bullish scenario. After plunging 18 points from Friday’s cash session close, which was already down 14 points from Thursday’s close, it is possible that all available selling pressure has been expended.

The drop’s sponsorship is new, a trend change signal was narrowly avoided, and two more nearby attractions were neutralized at 1390.00-1391.00 and 1383.50. Add to it that the post-close selling may have been triggered by leaks from the fiscal cliff talks that were ending without accord, a “knee-jerk headline reaction” on steroids.

Of course, new lows are not a buy signal.

Monday’s opening print must reject the late drop to avoid more downside or delayed recovery. My pre-close comments are no less pertinent after the 18-point post-close plunge. Trending going forward is an either/or proposition — either bottom on Monday, or begin the big downleg.

[/pay]What’s Next… (Outlook and opportunities)[pay]
I’ll describe this in detail with charts during the  “Saturday Strategy Session.” It’s at 9:30am ET, and linked from the blog’s sidebar. Any last-minute year-end stock jockeying that you need can be addressed there. [/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 morning’s drop expended so much selling pressure… then didn’t the afternoon expend a lot of buying pressure, too? Left pent-up at lower levels, the buying pressure could have launched a significant rally into and out of the weekend. Now hesitating to resume the rally Friday would suggest that buying pressure was fully expended.

Pattern points… (Setups and technicals)[pay]
Thursday’s test of 1401.00 included a test of the two-week old 1406.00 prior low. Its break would have next targeted 1391.00-1392.00, and also signaled the trend reversing down. A second consecutive lower close Friday might have confirmed. Now, that’s not an issue.

Closing above 1401.00 after probing under it set-up the potential for a significant low, likely to test 1431.00. Already rallying back to relevant resistance (1416.50) the same day expends a lot of buying pressure. Closing back under Wednesday’s 1410.75 prior low indicates that buyers gained no traction for their efforts.

Sellers gained no traction for their efforts, either. And they left no unfinished business below to require resuming the decline. Resuming the week-old decline must break under 1402.50 or 1401.00. Resuming Thursday afternoon’s rally must essentially gap up above 1419.00, and extend above 1422.50 — any shallower strength would be vulnerable to failing and resuming the decline.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Thursday afternoon’s rally chipped away at “higher prior lows.” There is no requirement to probe any higher, but probing higher would be required to extend. Not exploiting a higher probe by extending higher would not necessarily default to being very bearish, not if the open isn’t already breaking back under 1401.00-1402.50.[/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 low is retested… then another rally attempt can form. But the rally would have no better chances than previously. Meanwhile, retesting Wednesday’s low would risk break lower into a new downleg.

Pattern points… (Setups and technicals)[pay]
Wednesday’s bias timing window through 10:15 ranged narrowly around 1423.00. That’s not an arbitrary level, nor was it an arbitrary window. So, the congestion there has an attractive quality that wants to be retested.

The ineffectual pessimism there — hovering just under the 1425.25-1426.00 gap back to Friday’s close — became pretty effectual, plunging to 1410.75. More so, oversold RSIs at the low require its retest.

Meanwhile, there is also ineffectual optimism suggesting that buyers are delaying the inevitable. Monday avoided a retest of Sunday night’s 1417.25 lows, undermining the interim rally. Now Wednesday’s momentary dip under last Monday’s 1412.00 opening gap has undermined its impatient buyers, too. That gap up had produced a fresh high, so there is no bullish reason to be revisiting it.

The rally need not resume. The gap back to Friday’s close need not be filled before a downleg gets underway. So, any further delay to an obvious decline would give a bounce new hope.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Extending Wednesday’s last break under 1416.50 to retest 1410.75 overnight before any consolidation could form the basis for another corrective bounce. Simply avoiding a recovery before Thursday’s open would keep the break’s momentum alive.[/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.