Market Wrap

If Friday’s stunning intraday rally anticipated a resolution to the fiscal cliff concerns… then Friday’s lows are at great risk of being retested. I’m neither an economist nor a political pundit, but I don’t expect compromise to come this seamlessly. If at all. Regardless, I don’t view the recent decline as having been due to the fiscal cliff. Meanwhile, the hope for its resolution is more bullish than the actuality, which would put that optimism behind us.

Pattern points… (Setups and technicals)[pay]
The Wed-Ex indicator’s influence, ultimately, was valid, keeping Friday afternoon under pressure. Price action was actually biased downward from 1356.00 to 1348.00 at bias environment’s exit. Its reaction up to fresh session highs at was nonetheless retraced back to 1356.00 at the cash session close.

When Wed-Ex is only nominally influential Friday afternoon, but influential, then Monday morning often compensates. It could be from gapping up dozens of points, but be aware that post-open action could still trend down through the morning.

Oversold RSIs at the afternoon’s 1348.00 reaction low require a retest. And the session’s “outside day” suggests that impatient buyers have already expended too much near-term energy. Meanwhile, after having trended up into the close, gapping down under Friday afternoon’s 1348.00 low would signal a “session-long decline.”

So, the bearish resolution remains a risk, even if only limited to Monday morning. After that, the multiple tests of  1348.00, twice also testing 1342.25, could form a durable bottom if still holding into Monday afternoon

[/pay]What’s Next… (Outlook and opportunities)[pay]
We’ll discuss the potential bottom — and ongoing risk of further decline — at the Saturday Strategy Session. Any stock requests will be addressed then, too. See you at 9:30am 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 Thursday’s test of the decline’s objective intends to hold… then can it range narrowly so narrowly for another day? No. Thursday’s narrow range is already suspicious, if sellers were satisfied already. Tick, tock.

Pattern points… (Setups and technicals)[pay]
Thursday’s 1350.50-1351.00 close was essentially flat with Wednesday. That’s bad news for anyone expecting a rally. Two consecutive sessions tested the same lows without strong-handed buyers appearing.

Worse news is that Thursday’s lower lows were relatively shallow. The decline’s 1348.00 objective was met already during the morning. Yet, the afternoon’s bounce was retraced almost entirely back down to its 1345.50 origin.

Even worse news is what Thursday afternoon’s retracement did after coming within 1 tick of 1345.50. It launched a 7-1/2 point bounce. That’s not arbitrary noise. And having coming so close to the low first, a fresh low should print at some point. So, the bounce was optimism. A lot of it, which is not the stuff of a durable bottom.

Perhaps a brief, fresh low Friday morning can be rescued (from 1342.25?) before it gains traction that extends down to 1324.00. The bearish Wednesday Expiration Indicator suggests that would be futile, since the afternoon should be biased downward.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Since buyers gained no traction Thursday, any credible rally would begin by gapping up. And this being expiration, the morning’s trending would be difficult to reverse. The good news is that there’s an attraction back up to overbought RSIs at Thursday afternoon”s 1356.50 high, but it becomes bad news if testing holds as resistance. [/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 they circled the wagons around Big Bird… then what are the chances of “compromise” to avoid the fiscal cliff? PBS funding was questioned during the campaign. It is worth hundreds of millions of dollars. Clearly, Big Bird can stand on his own two feet. So can Barney, even without support from his tail. If they can’t be bothered to do with less taxpayer funding, then no other big decisions are likely.

None of which should be surprising, and yet the market tumbled anyway Wednesday afternoon on the President’s uncompromising posture. No doubt the potential ramifications of Gaza shelling spooked the market, too. But sharply probing new lows on either of these developments suggests there’s more brewing.

Pattern points… (Setups and technicals)[pay]
Wednesday’s drop trended down throughout the day. It hesitated or bottomed at targeted supports, i.e. the pattern’s distributive objectives. The morning’s 1362.25 low was 2 ticks under its bias-down target. The afternoon’s 1349.50 was 4 ticks under its 1350.50 target.

Recall that 1348.00 was the objective put into play by last Wednesday’s break under 1397.00-1397.75. Room for noise under 1350.50 down to 1348.00 can be tested before signaling the decline is extending. Extending the decline would next target 1324.00.

Meanwhile, there is potential to bounce. Having held a test of 1350.50, no lower objective was put into play. That doesn’t preclude the drop from extending without delay, but it cautions against holding-short overnight. It also argues for buying a bounce that is recovering from a fresh low (presumably down to 1348.00) whose RSIs diverged positively.

[/pay]What’s Next… (Outlook and opportunities)[pay]
The Wednesday Expiration Indicator triggered an actively bearish signal. That speaks to the bias into and out of the weekend Friday afternoon and Monday morning. Big breaks like this past week can extend in the interim anyway. Regardless of an interim bounce, expectations are for expiration to 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.

If Monday night’s drop couldn’t resume the decline… then Tuesday afternoon’s attempt can’t tolerate another detour. Testing and retesting Monday’s low-volume low should have chipped away at its support, unless its support intends to launch a bigger bounce.

Pattern points… (Setups and technicals)[pay]
Tuesday’s pre-open drop down to 1365.75 came close to Friday morning’s 1363.50 “new Globex trend extreme.” Close enough to all but assure its test. Having probed under Monday’s 1373.00 low, recovering back above Monday’s 1381.50 high could have launched a multi-session detour. But 1381.00‘s recovery failed, and so did Monday’s 1373.00 support.

Detouring on the way to an objective generally indicates that the objective won’t hold its test. So, bouncing 20 points from 1365.75 instead of extending down another 3 points reflects optimism. Rejecting the detour reflects ineffectual optimism. That refuels the decline, making it likelier to extend.

And just like Tuesday afternoon’s break was likely to be deep and steep, extending down Wednesday morning should also be deep and steep. Tuesday afternoon’s extension measured 7 points down to 1372.00. Wednesday’s extension should essentially measure 21 points down to 1350.00.

[/pay]What’s Next… (Outlook and opportunities)[pay]
The drop can be circumvented in a couple of ways. First would be to recover above Tuesday afternoon’s “higher prior lows” at 1379.00. There is that much room to absorb buying pressure without sellers losing traction. Second would be to gap up above Tuesday afternoon’s 1384.00 high. Rejecting Tuesday’s closing downtrend would trigger a session-long rally.[/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 Monday’s session only delayed the pattern’s resolution… then Tuesday’s open should compensate for the delay. If trending in one direction or the other isn’t obvious at the open, then the morning might remain trapped in the range.

Pattern points… (Setups and technicals)[pay]
A chart of Monday’s price action may look volatile, out of context. Not when considered in the context of price action that preceded it. That’s not surprising, considering the lower participation on Veteran’s Day with the bond markets closed.

Not that the session ever stood still. Wide swings “trended” up from the overnight dip to 1372.50 back up to 1381.50, then back down intraday and back up again. It is not coincidental that the action resembles a wild bronco bucking in its stall at a rodeo. And the rider is about to jump on.

Monday’s price action was not any more predictive going forward. Unfinished business was left below at the morning’s 1372.00 bias-down signal, but it is already encompassed by Friday morning’s 1363.50 “new Globex trend extreme.”

If anything, it was optimism that prevented testing 1372.00, perhaps the same “ineffectual optimism” that prevented recovering back above 1378.00. Just more evidence that buyers are weak-handed.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Regardless of which direction Monday’s pattern were to resolve, Tuesday’s open should try to trend forcibly if the morning were going to resolve it either way.[/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.