Market Wrap

Wednesday afternoon’s plunge… wasn’t required. But the door to it was opened by waiting so long to fulfill targets below. And by first creating and fulfilling targets above. Buyers fully satisfied, sellers getting hungry, and the session close just ahead. No wonder buyers were nowhere to be found.

Pattern points… (Setups and technicals)[pay]
Wednesday’s session probed the prior two sessions’ lows, 1243.50 and 1241.75. And it reversed up sharply. Had that been the end of the story, then Wednesday’s expiration would be biased upward. But the bounce was retraced entirely. The probe under prior lows failed to hold.

It is certainly possible that Wednesday afternoon’s slide was exacerbated from being blind-sided by headlines. Banks sovereign debt exposure and European contagion have predictable reactions. The reactions to their reactions are predictable, too. They tend to be retraced.

The only question is timing. Wednesday’s expiration signal can be rejected by rejecting Wednesday’s close under 1243.50 and 1241.75. Recovering them immediately Thursday would suggest they weren’t broken by expiration position jockeying. Not immediately recovering them would confirm that expiration’s bias was not up.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Thursday morning’s econ reports are influential to price action. There has been a generally receptive atmosphere recently, so upside potential may be limited, but look out below in case of a negative surprise.[/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.

Monday night’s lows overshot… the 1242.00 lower target left outstanding at the close. Tuesday’s post-open dip did not, holding 1242.00 as support. The question is whether the afternoon’s reaction up from 1242.00 corrected the drop to resume the decline, or whether the reaction up has resumed the rally.

Pattern points… (Setups and technicals)[pay]
There was no requirement to test 1262.00 Tuesday, but there was potential to test it for having recovered 1242.00 through the open. Its 9-point reaction down to 1253.25 confirms something important happened at 1262.00.

But was the reaction down bearish, or bullish?

After probing the afternoon’s 1260.25 bias environment peak, a fresh high printed during the next timing window up to 1262.25. Despite the fresh high, the session closed back under their 1256.00 interim low. This would be bearish.

This would be bearish — signaling that momentum had reversed down — except that 1256.00 had not been touched yet 3-5 minutes before the cash session close. Weak hands sponsored the late 9-point dive.

Strong hands would have touched that relevant price point further before the close. If not for impatient sellers, 1256.00 would not have been touched at all. In fact, the dive touched 1255.00, which fulfilled the target put in-play by breaking under 1259.50.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Tuesday’s late dive was not strong hands reversing the trend down. It was weak hands fulfilling their selling pressure. Strong-handed sellers could still take control overnight or at Wednesday’s open to dictate a new downleg. Almost any further weakness under 1253.00 could gain traction, but a break under 1246.00 (no longer 1242.00) would signal a bigger drop underway. Meanwhile, a bounce has room up to 1259.50 before signaling that Tuesday’s recovery was extending up to 1278.50.[/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.

Friday’s bearish pattern didn’t prevent… probing higher highs Sunday night. But it left the rally vulnerable to reversing down. Which Monday’s open exploited. And which Monday’s session extended. And which the extension still did not fulfill.

Pattern points… (Setups and technicals)[pay]
Monday afternoon’s 1242.00 bias-down target became “unfinished business below” when the bias environment was exited under the 1248.50 bias-down signal. Subsequent action probed down only to 1243.50, leaving the 1242.00 objective outstanding.

Monday’s last hour was entered below all prior intraday timing windows’ lows, a setup that is very unlikely to reverse up. Reversing it up tends to be done very aggressively, and still not necessarily durably.

In fact, potential for a short-squeeze had been mitigated already by exiting the afternoon’s bias environment under prior highs. Already recovering 1250.50 by 2:30 would have opened the door to a recovery.

1250.50 held as resistance through the cash session close, which equated to 1249.25. A post-close surge attacked 1253.00. But any break under 1248.50 would be vulnerable — if not likely — to resuming the drop. Bounces meanwhile have room up to 1257.00 before suggesting that another rally leg may be underway.

[/pay]What’s Next… (Outlook and opportunities)[pay]
News flow gets very interesting Tuesday. But not trending on the earliest news may be deaf to any later news.[/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.

Remarkably low volume was remarkably productive… Friday’s open gapped up 15 points to 1253.00. Then the session extended 12 points higher to test 1265.00. I wonder what will happen if normalized volume were to return Monday, since Friday’s buyers held 1262.00 resistance through the close. And what will happen if volume doesn’t return?

Pattern points… (Setups and technicals)[pay]
Those are actually rhetorical questions. The rally effort’s biggest problem is not its impatience — aggressive trending can gain traction when an intraday test of resistance (or support) is exceeded through a relevant timing window. Friday’s sponsorship proved to be weak hands by failing to break through 1262.00-1265.00 resistance.

Bounces like Friday’s rally have been reacting to downlegs that are closing under relevant levels. This provides context for interpreting the bounces as being corrections — and not the other way around.

If volume does not return Monday, then would the market be immune from another downleg? Only to a specific degree. Low-volume trending can be retraced by low-volume trending. Continued low volume could retrace all of Friday’s gain back to Wednesday-Thursday’s ~1248.50 “lower prior highs.” Of course, continued low volume could also allow Friday’s rally to extend, up to 1278.50 or even to 1289.25.

All within the context of being a correction.

Meanwhile, Friday’s intraday pattern did form a setup that could point down immediately Sunday night or Monday morning. The post-open Rising Wedge in an uptrend, which resolved by surging into a plateau, can be followed by a downleg that retraces it all — and often reverses the trend’s direction. The setup’s influence will lapse after Monday’s open… Pins and needles until then.

[/pay]What’s Next… (Outlook and opportunities)[pay]
This will an interesting week. Monday’s econ calendar is empty, but the balance of the week gets very active. And this being expiration week, there is potential for a directional signal at Wednesday’s close.  [/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.

For all of Thursday’s ranging… it’s almost shocking to notice it was an inside day. Wednesday’s lows were probed, but only overnight. Intraday trending never gained any traction, not in either direction. And the range narrowed. You know what that means…

Pattern points… (Setups and technicals)[pay]
Extended narrowing ranges tend initially to break falsely in one direction, and then to reverse more substantially in the opposite direction.

Breaking lower Friday morning would be vulnerable to probing fresh lows, even if only to retest Wednesday night’s 1218.50 low. If not to do more than just retest Wednesday night’s 1218.50 low, then the balance of the session could reverse direction up and probe above Thursday’s 1244.00 high.

Breaking higher falsely first is possible, too.

The false break can be negated by gapping open beyond its range. And that is interesting in the context of this being a Friday. While trending is difficult to get underway on Fridays, trending that gets underway is difficult to stop. Gapping open beyond Thursday’s 1224.50-1244.00 range would be vulnerable to trending in that direction.

Any trending from this stage of this pattern must fulfill not only the normal time and price parameters, but also in this case the trending must behave appropriately. And aggressive trending is the appropriate behavior at this stage of this pattern.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Thursday afternoon’s ranging felt heavy. Probes above resistance and buy signals were rejected as false breaks. Not all probes under support were productive, but those that weren’t did not reverse up immediately. And those reversals never fully recovered before failing again. Back under 1235.25 and 1232.25 would signal the drop resuming. Above 1240.00 would be likely to rally. In either case, trending should be aggressive to be credible.[/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.