Market Wrap

A session-long decline is rare… rarely is it only a shallow dip. Just as rarely is it a substantial drop. Wednesday’s session-long decline was neither. Most (61.8%) of the drop from Tuesday’s close happened by the open. The rest (38.2%) came intraday.

Pattern points… (Setups and technicals)[pay]
Among a session-long decline  setup’s characteristics is its tendency to print the session low during the session’s last hour. Wednesday’s setup failed in this regard. Not just because the last hour’s 1223.50 low stopped 3 ticks short of touching the 1222.75 earlier low — the earlier low actually printed 1223.50 basis SP, so only ES made a higher low.

The ES low did attack 1222.50 to within 1 tick. This level was very relevant last week when the prior downleg was ending. Falling so far and so fast only to narrowly avoid touching this previously productive level reflects optimism. It’s pretty interesting for impatient buying to appear 50 points under of prior close.

That optimism of avoiding a fresh low suggests that lower lows will print by a wide margin. Lower lows to some degree are already likely to print since session-long declines tend to extend down the following day.

Neutralizing the optimism with a sharply lower low could reverse up suddenly since Wednesday afternoon’s corrective bounce was relatively shallow. Testing 1212.50 and 1208.50 — down to at least 1205.00 — could find selling pressure expended. Not that a durable bottom would form, but a durable downleg wouldn’t tolerate much counter-trend bounce.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Closing Wednesday under 1227.25 without yet probing new session lows during the last hour was compelling to consider for a “hold-short through the close.” A counter-trend bounce overnight could reverse down from 1234.50 or 1239.00 and greet Thursday’s open in decline. But bouncing after first probing fresh lows would not be as assured of also reversing down.[/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.

There was no unfinished business above… and yet Tuesday afternoon’s rally extended to fresh highs. This makes the rally that much more difficult to reverse down. At least, until testing some attractions above.

Pattern points… (Setups and technicals)[pay]
Tuesday’s close above 1265.00 puts into play a test of 1278.50, assuming that 1265.00 is not rejected immediately at Wednesday’s open. Even then, that would only jeopardize a second consecutive close above 1265.00, and still allow a pullback to be absorbed.

Reversing momentum down would require first extending higher to fulfill 1278.50, and then closing back under 1265.00. That, or else immediately rejecting all of Tuesday afternoon’s rally, by gapping down back under its 1254.25 low.

Let’s point out here that Tuesday’s high being tested near the close was 1275.00. Gapping down Wednesday under Tuesday’s 1254.25 low would require 20 points of bad news. It can happen, regardless of 1278.50 being so much nearer. It’s just much less likely.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Any shallow pullback through the open — prior to testing 1278.50 and preferably also 1281.00, even if overnight — any shallower pullback holding 1262.00-1265.00 would be sponsored by weak sellers. It may still extend lower in a subsequent timing window, but it would still likely be absorbed.[/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.

Sunday night’s open couldn’t wait… to probe Friday’s highs. And it couldn’t wait to reverse back down. Monday morning’s open couldn’t wait to attack Sunday night’s highs. And it couldn’t wait to reverse back down. The afternoon’s retest of the morning’s highs hasn’t reversed back down. Could this one stick?

Pattern points… (Setups and technicals)[pay]
Monday’s last surge up fulfilled the open’s 1257.50 target. Reversing down prematurely had helped to maintain the recovery’s potential. The surge stopped short of retesting Sunday night’s 1259.50 high. Reversing down prematurely again would have the same meaning.

Higher highs would still be likely to test at least 1262.00. And it could still be tested and its attraction neutralized overnight. Fresh highs above 1262.00 would target 1265.00-1267.00. Any higher would target at least 1278.50.

Regardless of the upside, there are new downside attractions below. The first is oversold RSIs at the noon hour’s 1236.50 low. The second is the afternoon’s no-bias trending above its 1248.00 bias-up signal. Its retracement is likely also to revisit the 1:20 1243.00 pint, which often fails to hold.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Monday’s close trended up, so gapping down under Tuesday afternoon’s 1241.50 low would trigger a session-long decline. Just failing to hold the 1246.00 area as support would all but end the rally, anyway. Meanwhile, the path of least resistance is up. [/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 gap down was retraced entirely… at least, back up to its open. And then a little further. But the gap back to Thursday’s close remains open. Never fear, there’s plenty of headlines on their way.

Pattern points… (Setups and technicals)[pay]
A second consecutive close above 1248.00 Friday would have marginalized sellers through Monday. It was still being tested within 3 minutes of the close. True, a last-minute surge touched 1251.75 and a post-close surge touched 1253.25. The burden of proof was on buyers — last-minute and post-close do not suffice.

Neither buyers nor sellers are marginalized. The market tends to reward both. Probing Thursday’s 1259.75 high up to 1262.00 would be vulnerable to reversing down. Opening weakness would be capable of recovering, but less likely since the afternoon pullback already tested and held support.

Too much weakness Monday would also be vulnerable to extending down. Friday morning’s probe under 1237.50 to at least 1235.00 already retraced too much of Thursday’s recovery to be only its correction. Instead, Friday’s recovery is probably the bounce, and should be doomed to failure.

Resuming the decline would be attracted down to Thursday’s 1230.50 whose oversold RSIs require a retest. Monday morning weakness would be difficult to recover, so fresh highs are likely first if they’re likely at all. And extending the fresh highs could retest the prior week’s 1279.50 and 1289.25 highs if given the right tailwind.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Weekend headlines used to wait until Sunday morning’s political talk shows. Now they aren’t even waiting for Saturday. The Greek government’s vote of confidence over handling of its debt crisis should be tallied Friday evening (ETA 6:00pm ET). [/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 wild swing begets another… The sizable overnight drop and its more sizable pre-open recovery stretched optimism too thinly. Its eventual recovery still ended the day just above the overnight high. Buyers expended a lot of energy ahead of Friday’s high-profile econ report. More importantly, the market embraced fluctuation, just ahead of the same highly-influential report.

Pattern points… (Setups and technicals)[pay]
The afternoon bias environment fulfilled the retest of the 1154.75 pre-open high. It was tested up to 1256.75. And retested while RSIs diverged negatively. A dip tested their 1252.25 interim low.

No unfinished business above. Buying pressure waning. Timing window lapsing… And big news item just ahead (Friday’s pre-open Employment Situation report). What a wonderful opportunity for a sell-off — whether to discount pessimism and anxiousness ahead of the report, or to start a new downleg.

One catch: Reversing down from session highs can’t wait until the last minute. And the last minute is the bias environment lapsing at 2:30. At last the afternoon’s 1251.00 bias-up signal was touched, launching a rally up to 1259.75.

This action definitely reflects optimism, but not necessarily excessive optimism. Unless Friday’s open were to reverse down under a relevant support, fresh highs are likely, and likely to extend higher.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Thursday’s close did not trend up, so gapping down under the afternoon’s low may not be difficult to absorb. Having closed above 1248.00, a second consecutive higher close would make the rally likely to extend through Monday’s open, targeting 1279.50 and higher. But closing under 1238.00 would signal the rally had ended, and a new downleg was underway. [/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.