Market Wrap

If Thursday’s rally was only a correction… then what would signal it had ended? And how much higher could it extend, first?

Pattern points… (Setups and technicals)[pay]
Thursday afternoon’s bias environment was exited above the noon hour’s 1441.50 high, but the final hour wasn’t entered any higher. A fresh high up to 1444.50 did print between the two windows, so not extending higher was bearish. But it was only so bearish as to dip back into the noon hour’s range to 1440.00. Momentum did not reverse down.

The 1441.25 cash session close was within the noon hour’s range. That wasn’t enough of a retracement for sellers to gain traction for their efforts. But the traction that buyers gained is under suspicion. It’s nothing that a big, fat, gap up Friday can’t overcome. That would be preferable, anyway, since Thursday’s highs held their test of “higher prior lows” from last Thursday and Monday.

In any case, “lower prior highs” tested Wednesday have proved they would not break on their first test. Retesting them would be all but assured to extend down in a new downleg. Thursday’s bounce can extend higher only so long as continues gaining traction.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Immediately recovering 1445.50-1446.50 would target 1452.00. Any higher would likely marginalize sellers for the day. Not already rallying into Friday’s open could still back-and-fill down to Tuesday’s ~1436.00 lows without extending down. But any lower could greet the weekend attacking or probing fresh lows for the week.[/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 fresh lows were only holiday related… then Thursday won’t be in decline past the open. Good luck preventing a deeper decline if Thursday’s can’t avoid probing under Wednesday’s lows.

Pattern points… (Setups and technicals)[pay]
Wednesday’s lower participation didn’t help to retrace one bit of Tuesday’s drop. And it didn’t prevent Tuesday’s drop from extending down sharply. But slower volume did inhibit the drop from extending much beyond the opening hour. And it also inhibited the drop from being recovered.

The 9-1/2 point bounce from 1424.00 to the afternoon’s 1433.50 high was retraced by 7 points back down to 1426.50. Oversold RSIs at the low still require a retest, probably to 1421.25 where 1423.25 would have sufficed Wednesday.

Opening Thursday back above Wednesday afternoon’s 1433.50 high after testing 1424.00 overnight would be credible for rallying into the noon hour. Just opening above Wednesday afternoon’s highs would get a benefit of the doubt for some sort of squeeze, no matter how short-lived. But not even holding 1424.00 through Thursday’s open would suggest another dive like Tuesday is underway.

[/pay]What’s Next… (Outlook and opportunities)[pay]
A lot of economic reports are due Thursday. Their relevance has been drowned out recently by QE3 rumors and Eurozone headlines. I suspect that they will become more influential to price action again, sooner rather than later, and probably on a day with a lot of econ reports due. [/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 two-week old highs will be retested anytime soon… then Tuesday’s sell-off must be rejected without delay. Its lower close put into play much lower objectives.

Pattern points… (Setups and technicals)[pay]
1468.00‘s overbought RSIs will always be a problem for a downleg trying to become a bear market. Any interim drop — including this current one — can be considered only a correction. But its “unfinished business above” was never a problem for inserting a sizable downleg, anyway.

And a sizable downleg may now be in-play. Holding last week’s 1443.75 low would have sufficed for retracing the FOMC rally. But closing under it Tuesday now requires a complete retracement back to its origin under 1431.00. It’s too late for Tuesday to close above 1443.75, and now lower targets are in-play.

But Wednesday’s open can reject Tuesday’s close by immediately recovering above 1443.75 and 1448.25. This is easier than it looks, since Wednesday’s Yom Kippur holiday exacerbated Tuesday’s sell-off to some indeterminate degree. Selling that wouldn’t have happened otherwise may have artificially depressed price.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Additionally, Wednesday’s trading volume is likely to dissipate, making it difficult to extend Tuesday’s trend. But just gapping up won’t be enough, since there is plenty of resistance above, and then a gap down below. Meanwhile, the FOMC rally’s origin wants to be retested, at least to 1433.00.[/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 Expiration Indicator had been bearish… then the market would have fallen much further than it did from Friday’s pre-open high. And that was 17-1/2 points. Actually, it would be on its way to falling that far, but from Thursday’s low. Tuesday we should learn whether the interim bounce created enough room to absorb all available selling pressure.

Pattern points… (Setups and technicals)[pay]
A lot of selling pressure had been expended already Friday from its 1462.25 pre-open high. The influence bled into Monday’s opening gap down and retest of the 1444.75 overnight low. Despite the momentum, Monday triggered two no-bias signals. So, no new unfinished business was created below. In fact, one of two attractions at 1447.75 was neutralized.

Thursday’s 1443.75 low still requires a retest. Missing multiple opportunities Monday to neutralize its attraction suggests that its eventual test will break lower, and not form a Double Bottom.

Meanwhile, overbought RSIs at Monday’s 1454.00 high require a retest. And the afternoon’s extension signal — exiting the bias environment above the noon hour’s high, and entering the final hour above the bias environment’s high — suggest another upleg will form.

The afternoon’s extension signal barely avoided being invalidated. It would have been invalidated by dipping back under its 1449.50 buy signal. Having dodged that bullet, gapping down Tuesday under Monday’s last relative low at 1447.00 would invalidate the signal by proxy. By the same token, the missed opportunity to extend higher late Monday should compensate for its delay immediately Tuesday.

[/pay]What’s Next… (Outlook and opportunities)[pay]
If Monday’s recovery were to extend higher overnight, the trick will be not to expend all of its sponsorship before the open, like Friday’s open. Meanwhile, Tuesday morning’s econ calendar is especially busy.[/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.

Strong hands or not, Thursday… night’s rally expended all available buying pressure. Expiration can trend relentlessly in either direction, even contrary to the opening gap’s direction. Friday could have trended up relentlessly, had the open been a little less optimistic.

Pattern points… (Setups and technicals)[pay]
Thursday night’s rally turned Friday into a repeat of last Friday morning’s reversal. Each peaked early, and then trended down through the balance of the day. They weren’t entirely similar, and that’s why this Friday’s version may be bullish.

The difference is that despite trending down into the afternoon, last Friday’s open and close both surged. This Friday’s version was already trending down at the open, and it also trended down past the close.Last Friday’s downtrending was bookended by optimism. Selling pressure was relentless this time, and the pessimism is potentially bullish from a contrarian perspective.

So, like last Friday’s opening surge, Thursday night’s rally created a lot of room to absorb a lot of selling pressure. And a lot of selling pressure was expended Friday. Friday’s cash session close held the 1453.25-1454.00 pullback limit which was created when the open barely held 1458.50. Opening Monday back above 1454.00 would be credible for extending higher intraday, probably back through Friday’s high.

Friday’s post-close action ticked down to 1450.50. Trading that low before the close would have put into play a retest of Thursday’s 1443.75 low. That may yet develop, if Monday’s open doesn’t immediately reject Friday’s post-close lower lows. Friday morning’s outstanding 1463.50 bias-up target can’t be relied upon to prevent a decline — it is “unfinished business,” but only by the thinnest qualifications, and on an expiration.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Saturday’s Strategy Session begins normally this week at 9:30am ET. See you there! [/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.