Market Wrap

Merry Christmas!… ES re-opens on Globex at 6:00am ET Wednesday morning. Until then, have a very happy holiday.

Pattern points… (Setups and technicals)[pay]
Sunday night’s drop to 1417.50 was retraced almost all the way back up to Sunday night’s 1424.25 open. The cash session only touched 1423.00, the morning’s bias-down signal. Its resistance was validated, and its 1416.50 bias-down target became “unfinished business below.”

Monday’s price action can still be rejected, invalidating its unfinished business below. Despite gapping down and ranging exclusively in negative territory — actually, because of gapping down and ranging exclusively negative — gapping up Wednesday above Friday’s ~1428.00 highs would suggest that stronger sponsorship was bullish.

Being an abbreviated, pre-holiday session doesn’t make Monday any likelier to be invalidated. That only makes it easier to invalidate it. By the same token, as much easier as it would be to invalidate, NOT invalidating Monday’s session would confirm its bearishness.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Not extending the decline Wednesday would not necessarily mean rejecting it. The gap back to Friday’s ~1426.00 close could still be filled before resuming the decline. [/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 failure to reach a fiscal cliff deal is bearish… and failure is obvious, then the market must already be discounting the fiscal cliff. So, would it be fair to blame no fiscal deal if the decline were to resume? Alternatively, wouldn’t the fiscal cliff have to be considered bullish if the rally were to resume despite not striking a deal?

Pattern points… (Setups and technicals)[pay]
Friday morning’s caution about the WedEx indicator proved timely, even if the WedEx indicator did not. The afternoon trended upward throughout. It did peak before touching the morning’s 1428.25 high, so the buying gained no traction. But that’s not exactly optimal for a bearish signal.

Perhaps it was the Mayans. More likely, it was the flash crash’s sudden revaluation, or Monday being an abbreviated session, into the Christmas seasonal bullishness. It may have been more eternal hope for a last-minute fiscal cliff deal.

Whichever, bearish influences were marginalized Wednesday afternoon.

The session-long decline also succeeded, technically, at keeping price in negative territory. The two may yet combine to pressure price back down Monday — with a vengeance. Sunday night’s action should clarify much.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Having bounced twice intraday to touch the 1427.25 lower-end of Wednesday night’s lows, Monday should either react down without delay, or else gap up above the range’s 1430.50 upper-end… NOTE: Don’t forget there is NO weekend strategy session. Click here for the recording of Thursday night’s “January Effect” worknight.[/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.

Be sure to join us for the “January Effect” workshop… Thursday night at 7:00pm ET in the Chartroom. Click here for more info.

Pattern points… (Setups and technicals)[pay]
The premise going into Thursday’s “Goldilocks” session was that it wouldn’t be too hot, or too cold, but juuust right. An instant recovery of Wednesday’s drop from 1444.50-1446.00 wasn’t likely, nor was extending the drop. The morning could back-and-fill, trapping shorts to be squeezed for an afternoon rally.

So, the afternoon rally to 1438.50 (cash session close) and 1441.00 (futures close) was not inappropriate. Any no-bias trending above the afternoon’s 1436.00 bias-up signal was retraced. There is no unfinished business below.

But that’s no excuse for extending the recovery prematurely. Extending too much higher too quickly Friday could find buying pressure had been expended. Remember that this week’s WedEx indicator is passively bearish, so no further rally is even required.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Testing 1444.50-1446.00 at or near Friday’s open had better invalidate WedEx by extending to fresh highs. Similarly, another shallow morning dip had better be shallow. Otherwise, in either situation, a reversal down could start the ball rolling to retest Wednesday night’s 1427.25 lows. And lower. [/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 sellers were strong hands… then they should have produced more than an 11 point drop from the highs. That kept alive potential for deeper selling. For a moment, it looked like that would be delayed until Thursday. Then came the late dip to fresh lows, extending the drop to 15 points. Now Thursday could just as easily recover.

Pattern points… (Setups and technicals)[pay]
We knew to be suspicious of Wednesday’s pre-open buying pressure. Unfinished business above at 1444.50 had been satisfied, price had only firmed overnight and not resumed trending. Not reversing down through the bias-up signal, and not trending down through the opening 15 minutes would have been surprising.

The WedEx indicator was only passively bearish. A decisively bearish open Thursday would be more bearish, but still only passively.

Meanwhile, Tuesday’s close above last week’s 1432.50 prior high was not confirmed with a second consecutive higher close. Satisfying the session’s 1431.00-1432.00 pullback target without closing any lower does allow another bounce Thursday back to Wednesday’s 1444.50-1446.00 highs — especially on a gap up above 1438.00-1440.00. But there is otherwise room down to 1423.00 within the context of simply correcting the rally from last week’s low.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Don’t forget about the January Effect workshop, Thursday night in chartroom at 7:00pm ET. Click here for more info. [/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 close isn’t invalidated immediately… then an upleg targeting new highs is underway. If Tuesday’s close isn’t confirmed immediately, then an upleg would still be questionable, at least for now.

Pattern points… (Setups and technicals)[pay]
Tuesday afternoon was similar to Monday. They shared what each other lacked. Neither offered any bullish indication in exiting the bias environment, entering the final hour, or through the 3:10-3:20 window. They were also similar in being attracted back up to the session high, despite lacking any bullish indication.

One big difference is that Tuesday’s held a test of its intraday high, and even reacted down. Monday’s late recovery extended sharply higher.

There is still upside potential from the afternoon’s 1444.50 bias-up target. It became unfinished business above, despite the bias environment dipping back to the 1438.00 bias-up signal. But the signal was triggered decisively at 1:20, so not rejecting it decisively left it in-play.

The dip back down to 1438.50 had avoided breaking under 1436.50, which avoided signaling a top had formed. A top is unlikely after closing above last week’s 1432.50 high, unless the close were rejected immediately by proxy Wednesday.

[/pay]What’s Next… (Outlook and opportunities)[pay]
The range of noise around last week’s 1432.50 high extends up to 1436.50. Gapping down to and through it Wednesday — and preferably also above 1434.00 — would be a good start at rejecting Tuesday’s fresh highs. But the rejection would also need to extend down sharply. Any shallower or less aggressive selling would be likelier to recover, and a firm open would be likely to extend higher.[/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.