Market Wrap

Sunday night’s slide extended… down sharply into Monday morning’s open. But most of the session was spent bouncing. That doesn’t seem as cleansing as the correction it could have been. And the bounce has retraced 61.8% of the drop…

Pattern points… (Setups and technicals)[pay]
Monday morning’s 1354.00 low was telegraphed in a number of ways… Fulfilling the 1355.00 extended target, RSIs diverging positively, recovering 1356.25.

But the low’s permanence for the session was not obvious. The decline could have resumed from 1359.00, without also testing “higher prior lows” at 1363.00-1364.00.

The low’s permanence is not a question — 1354.00 held for the session, but it should be probed eventually. The low stopped just short of filling the gap back to 1353.50, which equated to the low close two weeks ago. And its 1352.50 low should be probed as well, probably under 1350.00.

“Higher prior lows” at 1363.00-1364.00 didn’t require a retest, and their test hasn’t been rejected despite neutralizing their attraction. And the session’s last hour was entered back under the noon hour’s 1361.00 high. Unless the reaction down was simply delayed until Tuesday’s open, the bounce could extend back up to Friday’s close in the 1374.00 area.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Tuesday’s econ calendar is especially interesting. Five — count ’em, five — post-open reports due simultaneously. Could set the tone for Wednesday’s FOMC announcement and Bernanke’s press conference. Especially if any gains are only a corrective bounce. [/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.

One more reminder… for Saturday’s Strategy Session. It is linked from the blog’s sidebar (not held in the usual weekly chartroom), lasting an hour, beginning at 9:30am ET.

Pattern points… (Setups and technicals)[pay]
Friday’s cash session close was barely 2 points above Thursday’s close. It may as well have closed flat. More important is that Thursday’s late bounce extended to fresh highs, and that the session never dipped into negative territory. A lot of buying pressure was expended intraday, gaining no traction for the effort.

The intraday bounce may have refueled sellers, more than they were refueled by Thursday’s late bounce. Maybe not. Expiration doesn’t necessarily express those sort of motivations. But the session was not accumulative, and any ground covered intraday was rendered irrelevant by retracing it all into the close.

Most interesting is the proximity to the trend’s highs. Not only is the trend high higher, it is weeks old — not days old, and only several points higher. In fact, Friday’s expiration session developed entirely under “higher prior lows.” And the context is a trend change that was signaled two weeks ago. None of which is a sell signal, but all of which decreases any attraction to new highs.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Unless Monday’s open were to quickly recover 1377.00-1379.00, then its alternative should be to quickly resume the decline. Not just Friday afternoon’s drop that held 1373.50, or Thursday’s last drop to oversold RSIs at 1365.50. But the trend change’s drop that left gaps outstanding at 1353.50/1357.00, on the way to 1332.00. [/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.

Unusual volatility into and out… of expiration was the only  reliable information from Wednesday’s Expiration Indicator. After Thursday’s substantial overnight and intraday bounces, their reactions down, and the resolution well into negative territory, is it possible for any volatility to remain?

Pattern points… (Setups and technicals)[pay]
Wednesday’s Expiration Indicator was only modestly bearish, if bearish at all. Perhaps that tenuousness is why an overnight and intraday bounce to 1386.00 and 1390.00 was able to delay extending Wednesday’s decline. Despite having extended it, the Expiration Indicator remains only modestly bearish, if bearish at all.

1366.00-1367.25 became the next major objective below. The selling pressure behind the target was satisfied thoroughly down to 1365.50. But oversold 1-minute and 3-minute RSIs at the low require its retest, And its reaction up to 1374.50 is more than sufficient to have refueled sellers.

But there is no requirement to retest Thursday’s low within any time frame. And no requirement to trend down under it when retested. There is meanwhile plenty of resistance above, and a lot of volatility already expended. Expiration is being greeted from between a rock and a hard place — a suddenly dull session would not be surprising if the open wasn’t already trending aggressively.

[/pay]What’s Next… (Outlook and opportunities)[pay]
This being a Friday, the morning’s bias signal tends to persist through the noon hour. Trending will be difficult to start otherwise, and difficult to stop once it gets started. These influences are only more so during expiration.[/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.

Wednesday’s Expiration Indicator was… a little lacking. But of all the things it wasn’t, it wasn’t bullish — not unless Thursday’s open were to gap up sufficiently… While Wednesday’s Expiration Indicator did not predict much one way or the other — more bearish than bullish, if anything — Wednesday’s intraday volatility does suggest that Friday’s expiration will be extra volatile.

Pattern points… (Setups and technicals)[pay]
Wednesday’s choppy range held several tests of 1378.50. One of the last was during the no-bias environment, accompanied by 1-minute RSI diverging positively. It produced a bounce back to the morning’s 1385.50 high.

That was only 1 tick short of touching Tuesday’s cash session close. And it was poised to extend higher. The bias environment’s exit exceeded the noon hour’s 1383.00 high, and the session’s last hour was entered above the bias environment’s 1384.00 high. This setup tends to marginalize sellers, especially on an uptrending day.

Which Wednesday was not… The 3:10-3:20 window trended back down under the bias environment’s 1384.00 high. It extended down to almost 1380.00 at the cash session close, and to 1378.00 at the futures close.

Meanwhile, a sell signal triggered on the way back down at 1383.50. Its last productive bounce limit was 1381.75. And having spent Wednesday’s last 5 minutes under 1381.50, a “hold short through the close” was considered.

[/pay]What’s Next… (Outlook and opportunities)[pay]
There is no bearish reason to revisit 1381.75‘s productive bounce limit — not if the drop intends to retrace much more of Tuesday’s surge (e.g. 1371.00, 1366.00). And not if another attack on 1389.25 will be avoided.[/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.

A funny thing happened… on the way back the lows. Monday night’s drop fulfilled unfinished business under Monday’s low. And Tuesday’s open recovered above Monday afternoon’s high. Did that change the eventual resolution, or only delay it?

Pattern points… (Setups and technicals)[pay]
1386.00 was first tested during the noon hour, and the balance of the session ranged above it. There was plenty of opportunity to extend higher, but it was still being tested at the cash session close.

1386.00 is important because last week’s trend change signal — which is premised on the two consecutive closes under 1386.00 — would be invalidated by two consecutive higher closes above it. So it is interesting to note that the opportunity was ignored.

A plunge iimmediately following the close fell to 1383.25 in reaction to IBM and INTC earnings. It was too late to be bearish. Unfortunately, it was also too late to trigger a sell signal under 1386.00 that would have targeted 1383.00. So the rally gets the benefit of a corrective dip, without that dip damaging the chart.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Tuesday afternoon’s 1389.25 bias-up target is unfinished business above. It could be probed by 1-2 points. But it remains in-play so long as 1381.50 holds as support. And 1389.25‘s test is likely to reverse down unless exceeded through a relevant timing window.[/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.