Market Wrap

If AAPL’s earnings inhibited Thursday afternoon from extending the decline… then having them in our rear view mirror should allow the decline to extend, right? That, or produce enough of a rally to justify not extending the decline, at all.

Pattern points… (Setups and technicals)[pay]
Like moths to a flame, Wednesday night’s rally retraced Tuesday’s test of 1402.00 back up to the range’s 1412.50-1414.50 highs. These were bigger moths, but it had become a bigger flame. Thursday morning fell back to and through 1402.00 to 1399.50.

Having probed under 1400.00 in a second leg that followed a bounce from the 1405.50 area, the pullback from 1468.00 has no lower objectives. No lower objectives, that is, if the pullback has ended. Otherwise, this week’s consolidation — not bottoming — will resolve down into the weekend to resume the decline.

Keeping alive the decline’s momentum is several attractions below. Among them, oversold RSIs at Thursday’s 1399.50 low that all but require a retest, and distributive patterns targeting 1397.00-1397.75. Closing any lower would essentially target 1348.00, for starters.

Meanwhile, since there has been an intraday probe under 1400.00, an overnight probe under 1400.00 can already be in recovery mode by Friday’s open — especially so long as there is no complexity to the probing under prior lows.

[/pay]What’s Next… (Outlook and opportunities)[pay]
This being a Friday, the morning’s bias signal is likely to persist through the noon hour. This being fresh lows, a bias-down could be very productive, and very damaging before the weekend. While gapping up enough could avoid probing fresh lows, keep in mind that rallying too little at the open could simply retest the range’s highs — unless overnight lows have fulfilled unfinished business below. [/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 neutralizing one attraction were a pattern… then the next lower attraction should be neutralized soon, too. Unfortunately, failing to bottom from that first attraction would mean the second attraction won’t launch a recovery either. Therefore, be very cautious before getting too bullish too quickly.

Pattern points… (Setups and technicals)[pay]
Oversold RSIs at Tuesday’s 1402.00 low required a retest. It was fulfilled during Wednesday’s last half-hour. Grudgingly. Reaction to the afternoon’s FOMC announcement was choppy backing-and-filling that nevertheless trended downward.

One attraction below neutralized. One to go.

The eventual test of the 1400.00 area remains outstanding. It could have been satisfied at 1402.00 if its test were not the first downleg into the area. Instead, a probe under 1400.00 is likely, presumably by 2-3 points.

Nothing seems to be standing in its way.

Attacking 1402.00 produced two reactions up, and finally piercing 1402.00 also produced a reaction up. That was misplaced optimism. A deeper probe is required before any bounce would be credible for gaining traction. RSIs refusing to get oversold during Wednesday afternoon’s drop reflect a lack of sponsorship. That makes the drop easier to absorb and to reverse up from its objective. Meanwhile, it also makes the objective more difficult to reach.

A big enough gap up is always able to reverse near-term direction. But near-term direction remains down, with a big attraction just a little lower.

[/pay]What’s Next… (Outlook and opportunities)[pay]
An overnight dip to fresh lows under 1400.00 would not require retest intraday if Thursday’s open recovered 1402.00 and preferably also 1407.50. (I had included 1405.50 in that list during the Market Tour, but futures recovered to close there, which neutralizes its predictive aspect.) There is no requirement for any fresh low to hold, let alone to produce a bounce or recovery. Just a bigger picture that has long expected it. [/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 low fulfilled the decline’s objective… then Wednesday should not delay proving that a recovery is underway. But there are a couple of issues with Tuesday’s low being a bottom, like meeting it in a single leg instead of on a retest. So, either sellers or buyers that take immediate control Wednesday will get a benefit of the doubt for extending in that direction.

Pattern points… (Setups and technicals)[pay]
A test of the 1400.00 area has been the longstanding objective of this decline. At least, for the purpose of launching a retest of 1468.00. Tuesday’s low was 1402.00. So, what’s the problem?

Corrections tend to end on a retest, and not in exhaustion. A meaningful bounce from 1405.50 to 1414.50 was likely to intercede between a probe under 1400.00. While 1405.00‘s test did produce a bounce up to 1414.50, what about the lower low?

Tuesday’s “session-long decline” setup did prevent the intraday recovery from actually recovering — the gap down’s 1412.50 opening print held multiple tests throughout the afternoon. Only its likelihood for printing session lows during the last hour was left outstanding. Either the signal is fulfilled and because tremendous buying pressure is forming, or it will be fulfilled almost immediately Wednesday by probing under Tuesday’s lows.

If it’s the latter, then a fresh low Wednesday had better hold, or else a much much bigger decline is underway. If Tuesday’s recovery were to extend higher, then it’s opening will determine its trustworthiness.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Wednesday’s open may be influenced by pre-open econ reports. But its post-open action should be inhibited ahead of the afternoon’s FOMC announcement. [/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 afternoon’s recovery has legs… then it had better grow them or show them by Tuesday’s open. Otherwise, it will have only served to fatten up the market for attracting new sellers.

Pattern points… (Setups and technicals)[pay]
The setup at Monday’s low produced a bounce targeting the 1422.00 area, which was tested to within 1 tick. Rather than just range there, the balance of the session was either going to resume the decline, or produce fresh session highs. The final futures tick was required to fulfill it, but the morning’s 1430.75 was pierced.

Not closing above the objective means that no higher objective is in-play. Not fulfilling the objective would have been more bullish, although that would have made the pattern suspect.

Opening above 1433.00 Tuesday would suggest the recovery was extending, probably through Wednesday morning, and possibly back to the highs. Meanwhile, sellers don’t gain traction from above 1426.50. It can be tested down to 1425.00 for refueling the recovery. Any lower would signal that Monday’s recovery was all recovered out.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Caterpiller’s (CAT) earnings miss was just one in a string. I theorized earlier Monday that rally out of its negative reaction might encourage a theme that earning misses had been discounted. So, it is interesting to note that Texas Instruments (TXN) warned soon after Monday’s open. It affected the stock negatively, but only a little, while ES firmed up to 1432.50. [/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 a 200-point drop is Friday’s anniversary gift for being 25 years since Black Monday’s 500-point plunge in a market that was 20% lower… then that’s quite a let-down. Its equivalent would have been 2500 points. As anniversary gifts go, this would equate to a greeting card. Of course, some gifts are belated…

Pattern points… (Setups and technicals)[pay]
This Friday’s close is similar to the prior Friday. The session’s low left the market positioned precariously above support that is vulnerable to sliding sharply immediately Monday. The alternative to sliding sharply is all but required to recover just as substantially.

In fact, last week’s open did drop immediately Sunday night. Not having extended down, the alternative was to gap up and trend higher, which it did. The same choice was left the market for this week’s open.

There is still a likelihood to recover and retest recent highs up to 1471.25 AFTER a deeper drop or plunge, presumably from testing 1400.00. And there is still potential simply to retest recent highs first. None of which can prevent an immediate drop from extending much lower than 1400.00 — which is likely to be tested if Monday’s open isn’t already rallying.

[/pay]What’s Next… (Outlook and opportunities)[pay]
There is no Saturday Strategy Session this weekend (or next). Friday’s Market Wrap included a bigger picture discussion, including the S&P/Dow/NDX comparison often considered on Saturdays. [/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.