Market Wrap

Last Wednesday? What was last Wednesday?… Oh, right. The Dow rallied 490 points. The week-long distribution since then has been discussed here daily. Does Thursday’s steep drop mean momentum is reversing down?

Pattern points… (Setups and technicals)[pay]
Thursday’s very interesting opportunity for a squeeze was fulfilled after blipping-down to fulfill the afternoon’s 1230.00 bias-down target. Its likely objective at 1240.00 was met quickly. And 1240.00 was likely to hold as resistance through the close.

10+ points is a lot of energy to expend just to test resistance, resistance that is likely to hold, with little time remaining before the close. Catching the bottom is overshadowed by not catching the obvious vulnerability to reacting down sharply.

And the market did react down sharply, plunging 15 points down through all prior lows to 1225.00. A bounce to 1231.00 through the close was just a miniaturized version of the prior bounce — expending unavailable energy just to probe resistance. A “hold-short through the close” was compelling.

Last Wednesday’s 1220.75-1223.50 opening range should be retested at some stage. It should be tested soon so long as 1233.00 holds as resistance. Above 1233.00 would allow another corrective bounce, first.

[/pay]What’s Next… (Outlook and opportunities)[pay]
The morning’s comment about the potential trend change can now be confirmed. There was no reason to revisit the 1240.00 area again, making its eventual break likely. It has been broken. A second consecutive close below 1240.00 would confirm, and need not be a lower low. It also may rally sharply intraday. Only the close is relevant to the signal.[/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.

Plunge by the rumor… Surge by the rumor. Eventually, become numb to the rumors? At least, Thursday’s econ calendar will offer the market something to view with greater relevance.

Pattern points… (Setups and technicals)[pay]
Tuesday night’s 1268.00 high (basis Dec, 1262.25 basis MAR) did not require a retest, since Wednesday opened under relevant support to neutralize its attraction. That support was 1260.00-1262.00. Wednesday’s reaction down from 1267.00 held long enough above 1260.00-1262.00 to keep alive the attraction to fresh highs.

Anyway, overbought RSIs at Wednesday afternoon’s 1267.00 high require its retest, which is a greater attraction than retesting Tuesday night’s 1268.00 high.

Retesting both overnight would still neutralize their attraction(s) above, but it’s too late for a reversal back under 1260.00-1262.00 (1254.25-1256.25 basis MAR) to reverse momentum down. Thursday’s open can serve as proxy by immediately breaking under 1257.50 (1251.75 MAR) and extending under 1253.50 (1247.75 MAR) without delay.

Otherwise, any shallower opening pullback or extending up through 1267.00-1268.00 (1261.25-1262.25 MAR) would make 1280.00‘s test (1274.25 MAR) likely next. One week of distribution without resolving down by Wednesday afternoon — or by proxy through Thursday’s open — allows the focus to shift forward to the weekend’s illiquidity.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Corzine’s testimony before a House committee (assuming he appears) could suck the volatility out of morning price action. His “On the advice of my attorney…” responses will still be interspersed with Representatives dressing him down — and offering the first glimpses at their understanding of the MF Global situation. [/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 took long enough… and then not long enough. Much of the session had ranged around Monday’s close before finally surging higher. Sharply higher, not so much to compensate for the delay, as to fulfill an objective above rather than to leave it outstanding. Without remaining aloft long enough, the surge was retraced entirely.

Pattern points… (Setups and technicals)[pay]
Tuesday afternoon’s surge to 1265.75 stopped short of touching a prior high, which stopped short of putting higher objectives into play. But its high was high enough to satisfy the afternoon’s 1262.75 bias-up target, while also neutralizing an attraction up to 1265.00.

Being the product of a fresh breakout, and having very little time remaining in the session, simply correcting the fresh target was not an option. It would either extend higher, or else retrace entirely. Perhaps 1261.00 could have held as support, but it did not, and the 1257.50 bias-up signal was retraced entirely.

More significant is that 1257.50 equated to the cash session close. Sellers expended a lot of energy to get there, and gained no traction for the effort. The drop fell another 3 points after the close, but its sponsorship was too late to be predictive.

Even more significant is that the extra 3-point drop touched 1254.25, which was the afternoon bias environment’s low. The cash session closing under it would have been worth considering a hold-short through the close. In other words, sellers didn’t just fail to gain traction — they expended all available pre-close and post-close energy possible without doing so.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Expending all available selling pressure into the close is not necessarily bullish, but it can be a start. It tends to precede either an immediate reversal back up, or else immediately extends the drop much lower. Regardless of how either scenario might play-out, not yet exploiting the four-day distribution pattern by Wednesday’s close would become vulnerable to resuming the rally.[/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.

The week started on a high note… which is how last week’s last session had opened, too. Monday also resolved down, much the same in principle, with minor distinctions. This can’t go on forever.

Pattern points… (Setups and technicals)[pay]
Last week’s last three sessions each had rejected probes above 1245.50. This sequence made it necessary for a corrective dip to refuel buyers if the rally were to advance. Rallying first would be unsustainable.

In fact, Monday’s session chose to rally first, and it was unsustainable. Its gap up to prior highs was unable to extend higher, and it was largely retraced. But not entirely. The gap up reflected optimism, as did the probe above Friday’s high and the morning’s high, and spending the entire session in positive territory. But closing under the noon hour low and under Friday’s high made that optimism ineffectual.

Still, there is only a pattern of expending buying pressure intraday without the effort gaining traction through the close. Without breaking support through the close, there is no signal of momentum reversing down. So, there remains potential for early strength, and likelihood for later weakness.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Nothing much on Tuesday’s econ calendar, but plenty of Eurozone headline risk to keep volatility lively.[/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.

Three consecutive sessions probed… the 1245.50 objective, without closing above it. That makes one thing likelier than another, it doesn’t prevent the other, but it tells us much about what comes later.

Pattern points… (Setups and technicals)[pay]
It took long enough. But 1248.00 finally broke lower to 1242.25, filling the gap back to Thursday’s close. And despite bouncing quickly a couple of points, 1245.50 wasn’t tested until too late for its recovery to be valid. Anyway, its test reacted back down.

This makes three consecutive sessions of probing above 1245.50 without also closing above it.

This does not in itself create a top. Probing above 1245.50 may be chipping away at its resistance, clearing the path for a later upleg. But there is noc obligation for a higher highs, only failed probes of higher highs. A sell-off attempt has become much likelier, even if only to refuel the rally.

Correction, or new downleg, a decline from 1245.50‘s testing has potential down to 1236.00, 1227.25, and even to 1222.50. Rallying first could reach 1262.00-1265.00, or 1280.00, but still be likely to reverse down.

[/pay]What’s Next… (Outlook and opportunities)[pay]
There is no Saturday Strategy Session this weekend, but we did cover much of the bigger picture in Friday’s post-close Market Wrap. Its recording is available in the sidebar. [/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.