Market Wrap

If Monday’s reversal intends to develop into a downleg… then why did the afternoon bias environment’s 1408.75 low not break convincingly? It was not for lack of trying — sellers did close under it, even after a dip down to 1406.50 had reacted back to 1411.00. Still not trending down through Tuesday’s open would at least require fresh highs intraday.

Pattern points… (Setups and technicals)[pay]
I characterize Monday’s upside in this way: initial optimism rewarded Friday’s buyers. I characterize Monday’s downside in this way: Monday’s initial sentiment often fails. As warned, Friday’s buyers had gained no traction for probing away at 1416.00 resistance. So, sponsorship disappeared after fulfilling the obligatory fresh high.

As if there was any question, closing back under Friday’s 1410.00 lows then confirmed buyers were weak hands. But are sellers much stronger?

Or, asked another way, are sellers also impatient? Notice that I don’t characterize Monday’s downside as a new downleg. It was only a reaction to the initial rally attempt.

Despite the opening strength’s failure being so predictable, there is nevertheless a gap outstanding back up to Monday’s 1421.50 open. It is a fresh high, and it hasn’t been retested since dipping back under prior highs. There’s also the pre-open 1424.00 “new Globex trend extreme” that requires a retest intraday.

Neither is a deal-killer for a productive downleg to begin. In fact, Monday’s close triggered a hold-short under 1408.00-1408.75. It wasn’t optimal, and it can be rejected after recovering from 1404.50 overnight (1404.25 was touched after the close). But 1412.75 and 1416.75 must be recovered to signal momentum actually reversing up.

[/pay]What’s Next… (Outlook and opportunities)[pay]
We’ve been hearing about the fiscal cliff “offers” being no more than posturing for their bases before party leaders compromise on a deal. Perhaps the strategy is to keep moving so far apart that they go full circle and back into each other. I don’t expect a deal at this time, around these levels, or at this stage of this pattern. Instead, keep looking for knee-jerk reactions to headlines only.[/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 rally couldn’t extend when sellers weren’t stepping in front of the weekend… then can it be expected to extend with a whole week ahead on Monday?

Pattern points… (Setups and technicals)[pay]
How narrow was Friday’s session? Simply calling it an inside day hardly does it justice, since it developed not only entirely within Thursday’s range, but entirely within Thursday afternoon’s range. The 6-1/2 point range stopped short of touching either of the morning or afternoon bias signals. It left no unfinished business behind.

Actually, it was nearly an 8-point range, thanks to a last-minute surge up to 1416.75. But that stopped short of touching Friday’s pre-open probe up to 1419.50 and was retraced down to 1412.00.

Still, even before the last-minute fireworks, there had been no actual trending before the afternoon’s bias environment had lapsed at 2:30. This was in a rally that would be difficult to reverse down, it being a Friday. Sellers posed no serious threat, the weekend’s illiquidity was fast-approaching, but the rally could not extend higher.

This could be a problem, unless the rally were to extend higher without delay Monday — and maintain the rally through the open.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Don’t forget the weekly Saturday Strategy Session that begins at 9:30am ET. Its link can be found in the blog’s sidebar.[/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 dueling press conferences hadn’t happened… then would the overnight rally have extended higher intraday? No downleg was productive except momentarily. Ultimately, no downleg gained traction. If sellers were absorbed, then Friday should make that obvious pretty early.

Pattern points… (Setups and technicals)[pay]
Thursday’s session was over before it began. The highest objective at 1416.00 was tested already overnight. Two pullbacks targeting 1411.00 and 1409.00 were recovered (the second one from 1407.00) back up to 1416.00. An afternoon dip to 1411.00 was also recovered back to… wait for it… 1416.00.

It’s difficult to reverse trending on a Friday when Thursday produces a fresh high close. I don’t mean to imply that it is impossible, or even unusual. But the weekend’s impending illiquidity cuts into the afternoon’s participation, which leaves only the morning to to get something done.

Exiting the morning’s bias environment at 11:30 back under 1405.00-1405.75 would be vulnerable to tumbling into the close. But if the trend hasn’t reversed down by the noon hour, then an afternoon sell-off would be unlikely. The next higher targets would be 1422.00 and 1425.50, then 1433.00-1436.00..

[/pay]What’s Next… (Outlook and opportunities)[pay]
Advance notice: Don’t forget about this weekend’s Saturday Strategy Session, which begins at 9:30am ET. Its link is found in the blog’s sidebar.[/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 recovery only corrected the morning’s drop… then can it probe above the downleg’s origin? Yes. Wednesday’s recovery did probe fresh highs in essentially fulfilling what would have been the afternoon’s renewed bias-up target at 1409.00. Rejecting that last part of the recovery would resume Wednesday’s initial decline — much more productively.

Pattern points… (Setups and technicals)[pay]
Gapping either up or down Tuesday would have been credible for extending the rally, or for reversing it. Tuesday instead consolidated the rally. Gapping was no longer appropriate Wednesday. But Wednesday’s open did gap down sharply.

That doomed the morning’s downleg to failure, whether sooner, or later. It happened to be sooner, albeit after dropping much lower, but the doomed downleg was retraced entirely.

Relevant levels were tested at the downleg’s low, i.e. both ends of last Wednesday’s narrow 1383.50-1388.75 pre-holiday range. In other words, the low did not develop at an arbitrary level. Recovering all the way back up to the drop’s 1407.75 prior high means that the rally intends on extending to the next relevant level(s).

1412.75 and potentially 1416.00 are in-play, unless Wednesday’s recovery were rejected immediately at Thursday’s open. Only the last consolidation of Wednesday’s recovery need be retraced to reject it all, and then only 61.8% of it, back under 1401.00. (Opening under 1400.00 would also trigger a session-long decline). Otherwise, the next opportunity for a downleg would come from fresh highs.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Immediately probing fresh highs Thursday could also launch a new downleg, if the fresh high were rejected through the open. Otherwise, assuming any initial opening strength isn’t rejected, not already reversing down would make the morning likely to trend upward throughout. [/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 last week’s rally was a corrective bounce… then how much time is allowed before not yet falling makes the bounce likelier to extend higher? Not much more, since Tuesday’s ranging nonetheless did try trending repeatedly.

Pattern points… (Setups and technicals)[pay]
Monday’s second consecutive close above 1397.00-1397.75 reflected enough strong-handed buyers to require a new distribution pattern to form if momentum were going to reverse down. Reversing down immediately would not have been credible. Similarly, failing to close positive Monday above Friday’s close required a new accumulation pattern to form if the rally wanted to extend higher.

So, Tuesday tested Friday’s 1406.75 cash session close as resistance. It was tested twice intraday, not counting the overnight retest of Friday’s 1407.50 high. And Tuesday tested 1397.00-1397.75 as support — also twice.

Third time was a charm, sort of. Tuesday’s last 90 minutes were spent chipping away at 1397.00-1397.75 support. A last-minute dip probed fresh lows down to 1395.50. Actually, that was a second-to-last minute dip. The last minute actually reacted back up into the range to avoid a hold-short setup.

So, Tuesday did range, it did continue forming a pattern, and it did restrain trending attempts. The burden of proof is on buyers much more than on sellers, although neither has gained traction for a breakout.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Gapping up Wednesday above Tuesday afternoon’s 1405.25 high would trigger a session-long rally setup. Working higher through the morning to break above 1405.25 at a later relevant timing window would also be a credible breakout. But maintaining almost any immediate weakness through the open under 1395.50 would be likely to trend down, potentially targeting new lows.[/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.