Market Wrap

Tangential influences like… quarterly earnings and Bernanke’s testimony have passed. Wednesday’s Expiration Indicator triggered only a mild signal. And the attraction to prior highs is all but satisfied. Anything else out there? Anything?

Pattern points… (Setups and technicals)[pay]
Wednesday’s late drop down to 1363.50 measured 6 points from its origin. But we knew its sponsorship was weak hands, since it did not break early enough. The 1368.00 bias-up signal was still being tested when the bias environment lapsed at 2:30, instead of already having been rejected.

The morning’s bias-up signal was similar in principle. Despite recovering cleanly above 1362.50 through 10:15, a dip tested 1362.50 at 10:30. Its break through 10:30 would have invalidated the signal, but only if broken cleanly. The result was an extended rally to 1370.50.

Actually, the result was to put into play the morning’s 1368.00 bias-up target. It became unfinished business above when not yet tested by 11:30. That same level was the afternoon’s bias-up signal, and it was not rejected — not cleanly — through 2:30. Its 1374.25 bias-up target remains in-play.

As there has yet to be a higher tick since triggering Wednesday afternoon’s bias-up, its failure is still possible. But probably only if Thursday’s open is trending down cleanly.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Overbought RSIs at Wednesday’s 1370.50 high require its retest, making it doubly difficult to trend down. Oversold RSIs at the afternoon’s 1363.50 low may try, but may have to wait for an early probe of fresh highs up to 1375.50-1377.50 to fail. Meanwhile, Wednesday’s Expiration Indicator was passively bearish, but that would become moot if Thursday were to close at 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.

It’s difficult to criticize… an complete intraday recovery from sharply lower lows.That describes most of Tuesday’s pattern. Not that a drop can’t begin without hesitation. But the retest of prior highs just got a much bigger benefit of the doubt.

Pattern points… (Setups and technicals)[pay]
Tuesday’s late drop came too late to be predictable. The bias environment’s exit above the noon hour’s 1356.00 high was not confirmed. In fact, a blip-up to fresh highs at 1360.50 just before the final hour reacted back down to fresh lows. The 3:10-3:20 window failed to save the rally effort.

The 3:10-3:20 window also failed to exploit the blip-up into a reversal down. Closing under 1353.00-1355.00 would have sealed a top, but its support was only attacked. Closing above 1356.00 did confirm that sellers gained no traction for their late effort, but buyers did not regain traction.

Oversold RSIs at Tuesday’s 1339.25 low require a retest. Gapping down Wednesday or immediately breaking under 1353.00-1355.00 would probably put it into play. Any less opening weakness — or maintaining opening strength — would resume the recovery targeting 1370.00/1375.00.

[/pay]What’s Next… (Outlook and opportunities)[pay]
The first day of Humphrey-Hawkins testimony doesn’t always generate a reaction. When it does, maintaining that reaction through the close (like Tuesday) tends to be in anticipation of the second day’s testimony triggering the same reaction. It rarely does — at this point, Bernanke can only reinforce what drove price lower initially, or walk back what ultimately softened its initial blow. We’ll keep that characteristic in mind as Bernanke clears his throat.[/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.

When there is a likelihood… to trend and no trending develops, the following session is likely to compensate for the delay. Monday’s session was likely to trend, and did not. Since its direction was likely to be up, does that mean trending down is not an option?

Pattern points… (Setups and technicals)[pay]
Tuesday can still trend down, but probably only by gapping down. Monday’s sellers gained no traction for their efforts — and the session was pretty much all their effort — so shallow opening weakness is likely to resolve up.

Sellers failed multiple intraday opportunities to regain control. Bouncing to fill the open’s gap allowed a break under the interim low to be bearish, but a break under the interim low was avoided. Ranging exclusively within the prior session’s range was itself a failed selling attempt.

Monday’s ranging was not quite “ineffectual pessimism,” and it wasn’t impatient buyers. Perhaps it was anxiousness ahead of Bernanke’s testimony Tuesday morning. Regardless, the burden of proof remains on sellers.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Overbought RSIs at Monday morning’s 1342.50 high require a retest. Retesting it overnight and then reversing down through the open could be very bearish near-term, with a lot of room below for only a correction. It otherwise remains attractive for renewing the rally effort. [/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.

It was a tough week for the market… inside and out. Manipulations in Libor and the CDS market were revealed, and another FCM revealed misappropriated funds. Banks nonetheless ended higher than where they began the week, and the FCM definitely ended the week lower.

Pattern points… (Setups and technicals)[pay]
Meanwhile, S&Ps extended the previous week’s drop sharply lower. They recovered to end flat with the prior week’s close. Despite the distracting shiny metal news stories, the market seems to have absorbed a lot.

Not really. Closing above the week’s earlier 1356.00 high would have been bullish. Recovering to only 1353.00 prevented buyers from gaining traction for their efforts. Again. So, the immediately resuming the rally all but requires gapping up.

Aggressive upside action would be likely for two reasons. First, recall throughout the week that no matter from how deep or for how the decline extended, it had already reached a stage that required its recovery to be steep and substantial. Friday’s action was in-line with the template. Second, the same template expects this recovery to form a bigger top.

The next objective of Friday morning’s 1346.00 target was 1353.00-1355.00, and the lower-end was tested Friday afternoon. Next targeted is fresh highs above 1369.00/1375.00, so long as 1346.00 is not broken through Monday’s open.

[/pay]What’s Next… (Outlook and opportunities)[pay]
There was no Saturday Strategy Session last week due to the holiday. Be sure to join us this weekend to discuss the market’s bigger picture, and to request instant analysis of any stock situations.[/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.

Uh-oh, Friday the 13th… Despite the ominous tones, the date does not make stocks any less lucky or likelier to plunge. Dates don’t really have that effect. This one doesn’t have to, since the pattern already makes that possible.

Pattern points… (Setups and technicals)[pay]
Thursday’s sell-off retested Wednesday’s low within limits, expending as much selling pressure as possible without sellers gaining traction for their efforts. If that doesn’t sound familiar enough, the reaction up already expended a lot of buying pressure.

And Thursday’s buyers also gained no traction for their efforts. Relevant resistance levels were recovered — but still being tested during timing windows, and not cleanly recovered. Those were weak-handed buyers.

So, once again, intraday drops to new lows are satisfying selling pressure without putting into play lower targets. Buyers are exploiting their exposure by rallying, but not capitalizing by gaining traction. (Review the Market Wrap recording for details of what price action reveals this.)

A rally can still emerge Friday. It would begin the same way as all rallies that follow buyers gaining traction, by gapping up.This being a Friday, and buyers having failed to gain traction for their late effort, resuming the decline could extend sharply lower into the weekend.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Opening above Wednesday’s 1339.50 prior highs would target 1346.00, and be vulnerable to a much bigger short-squeeze into the weekend. An interim dip could still visit 1326.50 or 1322.00, even if only overnight. Failing to hold its test would be more vulnerable to trending down into the weekend.[/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.