Market Wrap

Sellers never gained traction Wednesday… It’s not that the rally’s sponsorship is strong buyers. It’s that sellers are weaker, or patient. This relationship can end at any time, but it need not end immediately.

Pattern points… (Setups and technicals)[pay]
Opening weakness dipped only 61.8% back into the overnight range before extending higher to retest the overnight high. The morning’s higher highs during the no-bias environment were eventually retraced, but only as noon hour noise. And the afternoon’s higher highs closed above all prior timing windows.

And yet, Wednesday’s market was dragged higher grudgingly. The overnight high printed after sunrise. Both bias environments were no-bias. And any overbought RSI was reversed down almost immediately.

The rally can extend higher — recovering 1143.50 through a relevant timing window would target 1161.00, and potentially also 1172.00. Regardless, Tuesday’s low was too shallow, too brief, and reversed up too quickly to fulfill the retest of August’s low.

[/pay]What’s Next… (Outlook and opportunities)[pay]
One more look at the jobs picture Thursday may fine-tune the tone for Friday’s Employment Situation report, with end-o’quarter earnings following closely. [/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 to a 40-point drop… A 47-point surge. The noon hour’s 1097.00 high was rejected enough, and in time, for potential to test 1055.50. The effort ended at 1072.50, after the last hour had begun. A reversal up touched 1119.75. The alleged caused wasn’t even news. And in new condition, it was not worth 47 points.[pay]

Pattern points… (Setups and technicals)
The rally’s 1078.00 trigger was not the product of an accumulation pattern. Rather, there was simply no bearish reason to revisit 1078.00. But when coming off of fresh afternoon lows in the session’s last hour, “no bearish reason” became a presumably “bullish reason.” Whatever it was, something counter-trend was probably afoot, or at least worth taking at stab at being long.

The signal — or anti-signal might be more appropriate — is only directional. In Tuesday’s instance it was more powerful.

Just closing above 1104.50 would have signaled a bigger detour in-play. If extending 15 points further did not already exploit the detour, then its target could be 1135.50 or 1154.00.

The high’s overbought RSIs suggest the market won’t reverse down immediately Wednesday. But it can reverse down immediately after retesting Tuesday’s high. Gapping down back under 1102.00 and 1099.75 would reject the retest, altogether, and retracing the surge’s 1072.50 probably wouldn’t be far behind.

What’s Next… (Outlook and opportunities)
A market that can plunge dozens of points can surge dozens of points. A market that plunges dozens of points and then surges dozens of points can still plunge dozens of points. Or more.

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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.

Hold short through the close?… Monday afternoon’s pattern offered that rare setup, and needed only to avoid closing above 1106.00-1107.00. A late drop from there ended the cash session at 1092.75, and futures then fell to 1085.25. Did that confirm the setup, or already fulfill it?[pay]

Pattern points… (Setups and technicals)
The first of three near-term bearish factors is Monday’s close below the morning’s lows. The late 22-point dive did nothing different from the afternoon’s bias environment. It got ahead of itself only if Tuesday’s open gaps up above Monday afternoon’s prior lows (~1096.75). Otherwise, the second consecutive lower close now requires at least a third lower close, usually the following day.

The second near-term bearish factor is RSIs. Both 1-minute and 3-minute RSIs avoided oversold territory at the cash session close. Each did become oversold as futures extended the drop, but that was too late to qualify as expending near-term selling pressure.

Finally, the third near-term factor is based on a bigger picture pattern discovered by one Dr. Pavlov. He is famous, of course, for conditioning dogs to salivate at the sound of a bell by ringing it at feeding time. In our current application, the market is the dogs. Nothing personal.

The bell has been rung four times since last Tuesday. Except for Friday’s gap down, each open has rallied and each afternoon has sold-off. There are differences among them — Tuesday’s reversal never touched negative territory, and Thursday’s reversal still recovered to closed positive. Wednesday and Monday were the most obvious.

And now the impending Pavlovian response to the next bell — or one not too distant — will skip directly to salivating, i.e. selling-off, probably quite a bit overnight.

What’s Next… (Outlook and opportunities)
The greatest caveat to being bearish near-term, apart from already having expended so much selling pressure, is the ongoing risk of detouring upward on outside intervention. Otherwise, the retest of August’s crash lows is fulfilling expectations, and seems poised to further fulfill expectations for extending even lower. [/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.

Literally, a “Kodak moment”?… The scapegoat for Friday’s closing drop was the assumption that EK plans to file bankruptcy. Their denials after the close prompted SPY to firm a little (it still trades after-hours on Fridays). Just a little. Not enough for it alone to spark the potential speculative bounce described below… Especially not if the drop’s bigger cause was California withdrawing from the state/mortgagors settlement talks.[pay]

Pattern points… (Setups and technicals)
The minimum objective for retracing last week’s failed rally was not simply back to its 1135.50 breakout. A retracement back into the broken consolidation is also required. A 61.8% retracement is the typical candidate, 1118.00.

A downleg Friday afternoon was not required, but any downleg was likely to be well on its way to 1118.00. Friday’s 1121.50 close came close. Too close. It essentially tested the pattern’s 1124.00 38.2% retracement, and held it.

Ending with a test of the 38.2% retracement creates the opportunity for an immediate speculative bounce — i.e. sponsored by short-term money, weak hands. It would target at least 1146.00, perhaps also 1153.00, and maybe even 1163.50. And it would be only corrective, like all prior bounces.

That last characteristic is what makes a bounce unlikely — all the prior bounces. Last week’s buyers tried and failed, repeatedly, with each lower high resolving in a lower low. The complete retracement ultimately disproved the entire endeavor. Monday’s open is more vulnerable to gapping down under 1118.00 to 1116.50 or 1113.25, and extending down to new lows.

What’s Next… (Outlook and opportunities)
I chose the name “Saturday Strategy Session” because it seemed like an easy way to remember which day it is held. I thought about adding “You can log in up to one hour before the 9:30am ET start time,” but that seemed a bit much.[/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.

Last week’s bottom couldn’t launch a durable rally… which Thursday’s low proved. Its 1133.50 low retraced all of Monday’s breakout — up to 1190.00 and back down again. It’s not deep enough. And Thursday’s late bounce raised the stakes again.[pay]

Pattern points… (Setups and technicals)
Last week finished with an “inside day,” not incapable of launching a bounce, just incapable of launching a durable rally. That much was settled by retracing back down to the consolidation’s 1135.50 upper-end. But that much isn’t enough. A false breakout must also retrace back into the pattern that launched it. A 61.8% retracement back into Friday’s range equates to 1118.00.

That will have to wait. Thursday’s last timing window bounced back to 1148.25. Then it extended up to 1157.50. The bounce portion could have left further upside on the table to help resume the bounce Friday. But the extension already borrowed from that.

Although buyers got ahead of themselves, a decline doesn’t automatically begin. A pullback has room back down to 1148.25 before sellers start gaining traction. And then down to 1146.00 before signaling momentum has reversed down.

Absorbing a dip, or simply extending higher to fresh highs above 1161.00, could test 1181.00 before the close. That would be a neat trick, and an interesting paradigm shift — optimism into the weekend.

What’s Next… (Outlook and opportunities)
Don’t forget about Saturday’s Strategy Session. It starts at 9:30am ET and its link is found 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.