Market Wrap

If Wednesday’s signal is valid… then Thursday’s session refueled its sponsorship. A lot of selling pressure was expended off of the morning’s high, so the market’s real intent should be obvious at Friday’s open.

Pattern points… (Setups and technicals)[pay]
Wednesday’s close under 1432.00 that put into play the 1400.00 objective. Recovering 1433.00 Thursday would have invalidated it. It was not recovered. Not for lack of trying — the open exceeded it, as did the 1439.25 intraday high. But the afternoon’s consolidation was resisted by 1432.00, near enough to have recovered 1433.00 if that were the intent.

Maybe buyers needed extra time anyway. Recovering 1433.00 is no longer an option. Gapping up Friday above 1433.00‘s last prior high at 1435.00 would serve by proxy as if 1433.00 had been recovered through Wednesday’s close. Otherwise, a test of the 1400.00 is in-play.

If the break lower has resumed, then Friday’s open should gap under Wednesday afternoon’s ~1426.00 lows. That would compensate for what would be Thursday’s excessive optimism that spent the entire session in positive territory and never filled the gap back to Wednesday’s close.

[/pay]What’s Next… (Outlook and opportunities)[pay]
In case you haven’t heard because your electricity has been out for a week, the Vice-Presidential debate is Thursday night. Last week’s surprise had a bullish effect. A favorable surprise could trigger a gap up to 1433.00-1435.00. But without extending any higher immediately through the open, the resolution remains down. [/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 decline can’t find a bottom Thursday… then it better had found a bottom already Wednesday. Extending down almost any lower for almost any longer would drive a nail in the coffin that is the QE3 rejection.

Pattern points… (Setups and technicals)[pay]
Despite extending down once again into an afternoon consolidation, only modest selling developed before the close. To be sure, Wednesday’s consolidation began at the noon hour’s end instead of at its beginning, which is not the same pattern as Monday and Tuesday. But it is still not accumulation.

Closing under 1432.00 suggests the drop is extending to its next major objective attacking 1400.00. A second consecutive lower close Thursday would confirm, and should already be well on its way. Otherwise, closing back above 1433.00 — last week’s lows — would give another upleg another chance. And, similar to extending down, closing above 1433.00 would be likely to close well above 1433.00.

Unfinished business below was left outstanding at 1423.50, with room for noise around it down to 1421.50 to compensate for the delay. Testing it and recovering through Thursday’s open would be bullish, but not likely. Simply gapping up above 1429.00 and extending through 1433.00 would be a more credible rally, despite leaving the unfinished business below.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Jobless Claims is Thursday morning’s only high-profile econ report. Thursday afternoon we’ll discuss the market’s posture ahead of Thursday night’s vice-presidential debate.[/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 hold-short setup doesn’t extend down overnight… then what would prevent Wednesday’s open from compensating for the delay? Closing under the most recent consolidation’s equilibrium with lower targets outstanding merited considering whether to maintain a short position overnight. That can be thwarted, but not easily.

Pattern points… (Setups and technicals)[pay]
Similar patterns that appear consecutively tend not to resolve similarly. That was proved once again Tuesday afternoon. Or, was it?

The comparison is between Monday and Tuesday’s bias environments both exited while testing the noon hour’s high, and both barely missing entering their final hours any higher. Monday then surged momentarily in a false break that was reversed into the close. Had Tuesday also surged, then it would not have been only a false break.

In fact, Tuesday’s setup broke lower. But that doesn’t necessarily make it different from Monday’s resolution. While Tuesday’s break did probe fresh lows, it did not trend down any lower. Monday’s break to fresh highs did not trend any higher.

Each setup is still tracking a false break resolution. In order for Tuesday’s similar setup not to resolve similarly, its breakout cannot be false. Rather than recover from breaking lower Tuesday, Wednesday should extend the drop.

[/pay]What’s Next… (Outlook and opportunities)[pay]
The next lower likely objective is 1432.00 (an attack on 1400.00 below there). It is in-play so long as Wednesday’s open doesn’t reject Tuesday’s drop by gapping up above the afternoon’s 1441.50 high. Such significant buying pressure at that window would suggest that the drop since Monday’s open was the mother of all false breaks. Its short-squeeze would target new highs.[/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 weakness was a function of the holiday… then Tuesday should have little difficulty trending. It may have difficulty trending in only one direction. 

Pattern points… (Setups and technicals)[pay]
Friday’s rejection of the morning’s 1466.00 fresh high had suggested that sellers were strong hands. Closing flat at 1455.50 after probing negative territory down to 1451.25 prevented signaling that momentum had reversed down.

It didn’t prevent probing fresh lows Monday down to 1447.50, but the afternoon still recovered back to Friday’s lows as resistance. The entire session developed in negative territory, after gapping down, but without extending down. That setup suggests “ineffectual pessimism,” which would resolve upward.

Part of the problem is that Monday morning’s 1447.00 bias-down target remains “unfinished business below.” The rest of the problem is that Monday’s close was still testing 1451.00, keeping alive the attraction below. And the delay in testing it could be compensated down to 1444.00.

Unless lower levels were tested overnight and rejected through Tuesday’s open, or unless Tuesday’s open were simply gapping up to and through 1456.00, lower levels remain in-play.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Monday’s holiday meant no economic guidance. Tuesday’s isn’t much better. Alcoa’s (AA) earnings may be the most market-moving data.[/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 blip and dip rally pattern ended already… then does Friday’s blip and dip rally signal that the rally is really just a retest of prior highs? Or is there a bigger refueling process underway?

Pattern points… (Setups and technicals)[pay]
We spent a lot of time during the past 3-4 sessions discussing a pattern that was emerging, repeating, and then seemingly ended. That pattern was the post-open retracement of overnight/opening gains. Its purpose was to expend selling pressure from levels where its downlegs would not damage the chart.

If the pattern ended Thursday or earlier, then how to justify Friday’s 15-point reaction down to 1451.25 from Friday’s overnight/opening rally up to 1466.00? The session ultimately ended unchanged from Thursday’s 1456.00 close. So, was another early gain for trapping more shorts, so that squeezing them Monday could refuel the rally higher?

The easy answer is, we’ll see Monday. But if the rally is not extending higher immediately, then it probably isn’t extending higher, at all. And if it extends higher immediately, then it had better not look back when 1468.00 is retested — otherwise Friday’s sellers were not weak hands.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Join us this weekend for the Saturday Strategy Session at 9:30am ET. We’ll discuss the bigger picture, specific setups from the week past, and expectations for the week ahead. We’ll also do an instant analysis of any stock requests.[/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.