Market Wrap

If the market wanted to form a durable bottom… then it should have probed fresh lows Monday before rallying. Ending Monday in rally mode was expected. Whether that would mean only another corrective bounce now seems clear.

Pattern points… (Setups and technicals)[pay]
There was no bearish reason to revisit last Monday’s 1417.25 gap up. Not through a relevant timing window, not unless the intent were to extend to last week’s 1432.50 high. It (1417.25) had been tested already late Thursday and pre-open Friday.

But 1417.25 was tested, and recovered. The 1428.00 pivotal high preceding last week’s 1432.50 high was almost touched — which would then require actually testing 1432.50.

Seems pretty bullish, and not an unexpected outcome following last week’s decline. The problem is that the rally developed without first probing fresh lows, like unfinished business below at 1404.25. That would have allowed the rally to target new highs.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Probing fresh lows Tuesday or Wednesday could still neutralize the attraction below in time for a bigger rally. But extending higher first would risk neutralizing any attraction above that might help to prevent fresh lows from recovering.[/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 a Christmas rally wants to form from lower levels… then those lower levels will probably need to be met Monday and/or Tuesday, or else there might not be sufficient time to absorb and recover a later dip.

Pattern points… (Setups and technicals)[pay]
1412.00 resistance was tested by a lot of bounces Friday. Almost any accumulation pattern could have leveraged all that chipping away at resistance, whether to launch a rally or only a short-squeeze. But there was never any accumulative action, so no buy signal was ever identified.

Anyway, the morning’s unfinished business below at its 1404.25 bias-down target remained outstanding. And the session had been chipping away at 1409.00 support — while also forming a distribution pattern. Guess which way the market broke.

Sellers gained traction for their efforts — Friday’s close was still testing the morning’s lows, but it was under the noon hour’s lows and no prior high was recovered. So long as Monday doesn’t recover 1412.00 immediately or after fulfilling 1404.25, this downleg would next target 1397.75, and could extend to 1391.00-1392.00.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Don’t forget to join us this weekend for the Saturday Strategy Session at 9:30am ET. Its link is found in the blog’s sidebar… Also, this Thursday will be our “January Effect” discussion. Its start time is tentatively scheduled for 7:00pm ET. [/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 market intends to insert a downleg before Christmas… then there it should exploit the next opportunity. The next one won’t come along until too close to the holiday’s seasonal bullishness.

Pattern points… (Setups and technicals)[pay]
Thursday’s extended intraday decline fell back under the 1412.00-1416.00 prior lows for the first time since Tuesday, when its open gapped up above them. So, it was the first opportunity for a bounce from under prior highs to fill Tuesday’s 1417.25 opening gap up.

More interesting is where that opportunity appeared. The afternoon’s 1412.00 bias-down target was already met, and already retested. Trending down to a fresh low at 1410.00 prevented trending up above a prior high at 1414.50. Any bounce would be too late to be anything but a temporary correction.

The afternoon’s bottom did launch a bounce which came close enough (to within 1 tick and within the opening gap’s structure). It has been retraced already back to its 1411.00 origin. Overbought RSIs at 1417.00 may want a retest, which might be exceeded momentarily. But sellers otherwise need no further refueling before extending down to 1404.00 and 1395.00.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Just avoiding an open under Thursday’s 1410.00 low would make another bounce likely to test 1417.25 more thoroughly, if not more substantially like up to 1421.25. [/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 breakout was valid… then why was Wednesday’s fresh high rejected? That’s not a sell signal, and it can resolve up. But meanwhile it has potential to evolve into a top.

Pattern points… (Setups and technicals)
Wednesday’s session closed flat with Tuesday’s cash session close. This followed a new high intraday, which was triggered by the noon hour’s FOMC news. While there is nothing bullish to not extending a fresh high, it is not necessarily bearish.

Also not necessarily bearish is holding a test of 1427.00 (basis Mar, 1433.00 basis Dec) for the second consecutive session. Closing above it would have confirmed Tuesday’s breakout close. Holding its test instead suggests that buying pressure is peaking. Resuming the rally would require another dip and its recovery, presumably forming some sort of accumulation pattern.

There was nothing bullish about leaving unfinished business below at 1418.00 (basis Mar, 1424.00 basis Dec). Oversold RSIs at Tuesday’s 1417.25 (basis Mar, 1423.25 basis Dec) low still require a retest, too. They will continue trying to attract price down, but their attraction(s) can be neutralized overnight.

Also not bullish was reversing down after the FOMC detour up touched 1432.00 (basis Mar, 1438.00 basis Dec). That was the range of noise above 1427.00 (basis Mar, 1433.00 basis Dec), and overbought RSIs from its first test were neutralized. There is no unfinished business above. And that’s not bullish.

What’s Next… (Outlook and opportunities)
1418.00 (basis Mar, 1424.00 basis Dec) etc. can be tested overnight and produce a reaction up that greets Thursday’s open in rally mode. That’s why no hold-short setup was considered at Wednesday’s close. But rallying overnight would still be less likely to gain traction without first testing  1418.00 etc

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 one week of chipping away at resistance deserved a fresh high… does it necessarily deserve a second? Not when the second high would confirm a breakout. Since Tuesday’s rally was a breakout, a second consecutive higher close is a little less likely.

Pattern points… (Setups and technicals)[pay]
1433.00 has been included in our discussions for awhile. It would have been put into play by a fresh high close above last Monday’s 1424.00 Globex trend extreme. The only reason for it to become an objective would have been to encourage a second consecutive higher close, confirming a breakout targeting new highs.

1433.00 was also Tuesday’s renewed bias-up target. It was put into play above 1425.50, and it was tested. Now, since it has been touched already, a rally targeting new highs would require closing above 1433.00.

That might be difficult since its test reacted down 10 points. Its dip under 1425.50 was recovered back up above 1427.25, which held as resistance through the cash session close. The post close surge up to 1432.00 was otherwise irrelevant.

[/pay]What’s Next… (Outlook and opportunities)[pay]
When the afternoon drop was testing the 1423.75 opening gap,  I noted in the Chartroom that gaps up to fresh highs rarely accompany peaks, and even rarer do they reverse down in the same session. There is still a path down, but it requires greeting Wednesday afternoon’s FOMC meeting from under Tuesday’s range. [/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.