Market Wrap

If the pattern of retracing early rallies has ended… then will the new pattern be to trend intraday? And in which direction? Perhaps the impending Employment Situation report inhibited much follow-through either way Thursday. It won’t inhibit anything Friday.

Pattern points… (Setups and technicals)[pay]
The pattern of retracing overnight/opening rallies has ended. Or, has it? Thursday’s surge up to 1457.75 was retraced entirely, back down to the 1450.50 opening tick. The retracement had played itself out just when the bias environment began lapsing.

But that developed entirely in positive territory, above prior highs. And the retracement had every opportunity to reverse under the open’s 1448.75 lows, let alone into negative territory. The balance of the afternoon ranged sideways, also ignoring a sizable opportunity to trend down.

Thursday’s gap up and ranging in positive territory is not considered “ineffectual optimism” since the morning’s high wasn’t probed. That makes the afternoon’s ranging more likely pessimism — that’s right, pessimism after gapping up — which is potentially bullish from a contrarian perspective.

Pessimism ahead of the Employment Situation report should allow a knee-jerk reaction down to be absorbed, retraced, and reversed into extending the recovery. But a gap down maintained under Thursday’s 1450.50 post-open high would threaten to turn Thursday into an Island, as a new substantial downleg begins.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Whatever the ultimate resolution, the initial volatility should play itself out pre-open. The cash session should without delay either trend up, or gap down, and then extend in that direction. [/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 point to this week’s early rallies has been to absorb selling… then buyers had better be rewarded soon. Someone has been absorbing someone, but sellers will get the upper-hand if buyers can’t exploit the situation.

Pattern points… (Setups and technicals)[pay]
Another day, another overnight rally, and another higher open greeted by relentless selling pressure. Positive territory ultimately holds, producing another overnight rally. That has been the pattern all week. Monday, Tuesday, and now twice on Wednesday. Yes, twice.

Wednesday’s higher open at the 1443.00 bias-up signal wasted little time before sliding to the 1436.00 bias-down signal. What had taken five hours Tuesday, took a half-hour Wednesday. What to do with all that extra time? Another “overnight” rally! The close was almost an entire session away, but that didn’t prevent a 13-point rally up to almost 1449.00.

That was just into the noon hour. Another “overnight” rally had created a lot of extra room to absorb selling pressure. It was a premature no-bias rally, anyway. So, that extra room was used once again by more relentless selling, back down to 1441.00 — essentially Tuesday’s high, avoiding negative territory.

Is the next overnight rally may already be underway? Wednesday’s last reaction was a 5-point bounce up to 1446.00 might seem bullish, but that held a 61.8% retracement of the afternoon’s decline. Extending any higher at Thursday’s open should extend much higher. But probing under Wednesday afternoon’s low could put last week’s lows back into play.

[/pay]What’s Next… (Outlook and opportunities)[pay]
If the theme is intact, that buyers deserve a reward for three days of absorbing intraday selling, then simply probing fresh highs for the week will not suffice. An attack on the 1468.00 prior high would be possible. But three days of offering support to absorb sellers had better be rewarded soon, or else that support will be chipped away. [/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 late rally was weak-handed buying… then how much weaker was the pre-open buying that reacted down intraday into negative territory? In any case, the stronger hands should be rewarded with a range break by Wednesday’s close.

Pattern points… (Setups and technicals)[pay]
Tuesday’s last hour rallied, from the afternoon’s 1432.25 low up to 1439.75 by the cash session close. Futures extended higher to 1441.75. This allowed the session to close 3-4 points into positive territory, the opposite of what was threatened just one hour earlier.

That was similar in principle to Monday’s selling that never turned negative. Tuesday’s selling did turn negative, but ultimately held positive territory.

Last hour action is sponsored by weak hands. Tuesday’s last hour was clearly the product of buyers, so buyers are weak hands. As with Monday’s close, that keeps alive potential for extending down Wednesday. But like Tuesday, immediately recovering 1443.00 would be likely to trend higher intraday.

Opening just under 1436.00 would be vulnerable to extending down. But thanks to having trended up into the close, gapping down under Tuesday afternoon’s 1432.25 low would trigger a session-long decline.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Tuesday morning’s 1432.00 bias-down signal required a test, since it became “unfinished business below.” Tuesday afternoon’s 1432.25 low doesn’t quite qualify, but we’re not going to consider it being an attraction. Overbought RSIs back up to Monday’s 1451.50 high should be tested next if sellers aren’t regaining control at Wednesday’s open.[/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 new downleg ignores two overbought RSIs… then sellers must have strong sponsorship. It wouldn’t be the first time that multiple pieces of unfinished business were left outstanding above. But it would be unusual. And it would develop very quickly, if at all.

Pattern points… (Setups and technicals)[pay]
Now, along with the two-week old overbought RSI at 1468.00, Monday morning’s surge to 1451.50 also requires a retest. It was far enough removed from a news item not to be considered a knee-jerk reaction. The requirement to retest it did not prevent the balance of the afternoon from falling substantially.

The opening surge did create extra room to absorb selling pressure, and that may have saved the market’s 17-point retracement from turning negative. Regardless, the retracement does make Sunday night’s 1427.75 lows likely to be retested eventually, if not also last week’s 1424.00 low.

A lot of buying pressure was expended Sunday night and Monday morning. That was a lot of selling pressure expended since then. And all without closing in negative territory. That was only barely avoided, and not at all rejected, so Tuesday can still resume the decline, but another upleg remains possible.

[/pay]What’s Next… (Outlook and opportunities)[pay]
If the prior lows’ retest were to begin Tuesday, then it should include opening under the 1432.00 area. By the same token, not opening under the 1432.00 area would be unlikely to extend down. And likelier to bounce. Quickly recovering 1441.00 would all but ensure that 1436.00‘s support had held. [/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 Friday afternoon’s bounce didn’t reverse the morning’s drop… then, did it refuel the week’s decline? Suspicious behavior undermined confidence in the intraday recovery attempt. The recovery’s collapse confirmed suspicions. But avoiding fresh lows left us with only those suspicions.

Pattern points… (Setups and technicals)[pay]
The thing about trending on Friday morning is that it has a significant advantage. Two days of illiquidity is fast-approaching, limiting any counter-trend effort. That’s not to say Friday morning trending always extends — it can get ahead of itself and become vulnerable to retracing. But Friday morning trending gets a benefit of the doubt.

Reversing it tends to be preceded by a very specific behavior: exiting a relevant timing window back above a prior high in a downtrend, or back under a prior low in an uptrend. Any lesser or later reversal attempt is probably sponsored by weak hands.

Friday morning’s drop could have reversed up by recovering 1436.00 through a relevant timing window — exiting the morning’s bias environment, the noon hour, or the afternoon’s bias environment. Each probed above 1436.00 to late to be strong hands. The first two probes were productive. All failed.

Buyers had multiple opportunities to force shorts to cover, and to leverage that into an afternoon rally. Like Thursday’s failed late rally, they tried and failed. Like Thursday’s failed late rally, the consequences are bearish. Any rally Monday must be immediate.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Join me at 9:30am ET for the Saturday Strategy Session. Its link is found in the blog’s sidebar, or just click here.[/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.