Market Wrap

Special workshop Thursday evening… Don’t forget about the Freshman 10 being held at 7:00pm ET in the chartroom.

Pattern points… (Setups and technicals)[pay]
While delaying a corrective bounce makes it less likely, it also makes the delayed bounce potentially more powerful. This would be a product of the delay’s extra buying pressure. So, an immediate corrective bounce has one target, and a delayed corrective bounce can have a higher target.

That’s why testing the 1238.00 area Tuesday could have ended the correction, and already resumed the decline. And that’s why delaying 1238.00‘s test until Wednesday has potential for extending up to 1248.00.

The correction is not required to extend above the 1238.00 area, there is only more potential for extending higher since it was delayed.

Anyway, 1238.00‘s test reacted back down to 1222.50, fresh session lows. Its reaction down (into FOMC news) did recover back above Tuesday’s 1229.50 highs (on Bernanke Q&A). Wednesday’s last hour ranged sideways, supported optimistically just above 1229.50 without extending higher. Wednesday’s buyers did gain traction, but not enough not to be vulnerable.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Having trended up into Wednesday’s close, gapping down Thursday under Wednesday afternoon’s 1222.25 low would signal a session-long decline. Just breaking under 1227.25-1227.75 would make another bigger dip likely. A bigger bounce is 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.

Monday’s session-long decline… was likely to probe lower lows Tuesday. This was a little extreme. The downside vulnerability may have exacerbated the reaction to overnight news. Regardless, the question now is whether the decline can extend further.

Pattern points… (Setups and technicals)[pay]
Tuesday’s open and closing print were within 1 tick of each other at 1214.25-1214.50. That’s a remarkable consistency compared to the turmoil of gapping down 34 points.

But Tuesday was not “ineffectual pessimism” that would otherwise suggest the decline’s sponsorship is weak hands. There was no fresh afternoon low, and therefore no recovery from fresh afternoon lows to trap shorts. Tuesday’s range probably can’t launch a durable recovery.

It can try.

Recovering 1227.25 Tuesday would have targeted the 1238.00 area. Its delay would now allow a recovery attempt to target 1248.00, too. And given the right conditions, that could even gain traction to retest last Thursday’s 1289.25 high.

But I doubt it.

Not extending the overnight drop intraday can make the decline likelier to extend down. And extending the decline is likelier to try duplicating Tuesday’s gap down. Back under 1212.75 would at least target fresh lows at 1205.00, which perhaps only a gap up Wednesday can prevent.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Tuesday’s post-close 10-point surge from 1214.50 to 1224.50 seems like it already started the recovery bounce. It had better. That’s the first step to rejecting Tuesday’s 1225.25 close under the prior Tuesday’s close — closing under the last relative low close signals the trend reversing down. A second consecutive close under 1225.25 would confirm.[/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.

My “session-long decline” setup… takes two days to form, and rarely triggers when separated by a weekend. Even then, it is less reliable. That didn’t prevent Monday’s session-long decline from absorbing bounces, trending down, printing session lows during the last hour, and ticking down further into and out of the close. The setup has only one more characteristic that we might see Tuesday…

Pattern points… (Setups and technicals)[pay]
Monday’s probe under Thursday’s 1260.50 low is not a rejection of Thursday’s rally. Thursday’s rally began from much lower levels — either from Wednesday’s 1238.00 close, or from Wednesday afternoon’s recovery from 1221.50.

Monday’s 1246.50 futures close is a 61.8% retracement back to 1221.50. Holding it through Tuesday’s close (or rallying) would suggest the drop from Thursday’s high had ended. “Ended,” at least to allow retesting attractions above around 1279.50 and 1289.25.

One challenge to recovering is that a “session-long decline” tends to probe lower lows the following day. And lower lows here would likely test 1238.00–1240.00. Not recovering from so low would find little relevant support above 1210.00.

The alternative path up would be to gap up above Monday afternoon’s 1267.25 high. Gap up 20 points from Monday’s close? Why not! Well, apart from it being very unlikely, Globex has already extended down to 1242.00. Still…

[/pay]What’s Next… (Outlook and opportunities)[pay]
The next Freshman 10 introductory workshop is Wednesday evening at 6pm ET. Whether new to the service, or just looking for a comprehensive refresher, consider joining us then in the chartroom.[/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.

Saturday’s Strategy Session… will last only 45 minutes from its 9:30am ET start. Don’t let that stop you from joining to discuss the market looking back and forward, the week’s setups, and to request an instant stock analysis.

Pattern points… (Setups and technicals)[pay]
Thursday’s overnight decline and Friday’s intraday highs confirmed that Thursday’s close did hold 1279.50 as resistance, and that the later excess above it came too late to be relevant. Overnight action had essentially declined, and intraday probes above 1279.50 were rejected.

The same goes for Friday’s close. Its close above 1279.50 was much clearer, but 1279.50 is less relevant than the 1282.25 close and 1283.50 high of its late test Thursday. Both held as resistance Friday.

That makes two consecutive sessions probing 1279.50 resistance without closing decisively above it. There is a greater burden of proof on sellers, so there is still potential for retesting the overbought RSIs at Thursday’s 1289.50 high.

A temporary bounce to fresh highs is likely also because of the Complex Symmetrical Triangle that formed intraday Friday. (The pattern is “complex” because it forms away from the high’s trend extreme.) Breaking higher first would also form a Double Top with interim uptrending support, also a topping pattern.

A new downleg is unlikely to gain traction without first retesting Thursday’s high. A decline can be productive, but probably not very substantial.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Gapping down first Monday under Friday afternoon’s 1276.50 lows would signal a session-long decline since Friday’s last trending was up. An overnight retest of Thursday’s high would neutralize its attraction. [/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.

Clearly I underestimated the significance… of Wednesday’s low testing the 1217.00 target. Recovering so suddenly and testing new highs shouldn’t be underestimated, either. But like the pullback’s low, a reversal won’t be credible if delayed.

Pattern points… (Setups and technicals)[pay]
The next higher objective(s) above 1245.00 were 1265.00 up to 1280.00. I refined the latter to 1279.50. Anyway, Thursday’s highs blew through both up to 1289.25.

The 10-point excess is not irrelevant, but it isn’t much more relevant than having fine-tuned 1280.00 by 2 ticks. What is relevant is whether 1279.50 held through the close.

It did, and it didn’t. But it did. The last half-hour’s 15-point dive was retraced somewhat. However, the position-squaring window ended at 3:52, under 1279.50. Recovering 1279.50 fast enough would have undermined its earlier break, effectively creating a “tie” to be decided by the prevailing trend (up). That wasn’t necessary, since 1279.50 still was not recovered within 3 minutes of the cash session close.

1279.50 was exceeded post-close. But its late recovery already established the bounce’s sponsorship is weak hands. Extending above it only stretches the rubber band tightly.

The rubber band might be stretched tighter. Overbought RSIs at the 1289.25 high require its retest. The attraction can be neutralized overnight and already be reversing down into Friday’s open. Gapping up above 1289.25 could neutralize the close under 1279.50 and simply squeeze higher into the weekend.

[/pay]What’s Next… (Outlook and opportunities)[pay]
A forcible, violent drop Friday morning is not very likely. Of two possible paths down, only one would be vulnerable to melting down without first distributing more above the week’s prior highs. Not already reversing down into the noon hour could marginalize sellers through Tuesday morning. [/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.