Market Wrap

Happy New Year… Rosh Hashanah begins this evening at sunset. Markets will be less liquid, and maybe choppy, but not necessarily trending. More on that below… [pay]

Pattern points… (Setups and technicals)
Both 1-minute and 3-minute RSIs were oversold simultaneously at Wednesday’s 1143.50 low. This requires its retest, which can be accomplished overnight. Unlike intraday retests, the retest must be confirmed by then recovering the interim high (so far, that is 1149.50).

Simultaneously oversold RSIs also make the market vulnerable to a bounce. There is room to test 1158.00 without the decline losing traction. Not reversing down from there could extend up to 1165.50-1166.50.

No bounce is required, but a bounce would likely be only a correction. Following Tuesday’s “ineffectual optimism” by closing lower Wednesday is a signal that momentum has reversed down. This new context still allows a bounce, but the context makes any bounce likely to be absorbed.

None of the various support under Wednesday’s lows would be expected — normally — to produce any significant bounce. Just extending the Tue-Wed setup described above at Thursday’s open would trend down — normally — throughout much of the day. Perhaps it still would. But the Jewish holiday’s effect on volume makes trending more difficult to start.

What’s Next… (Outlook and opportunities)
The holiday’s reduced volume also makes trending more difficult to stop. I have found that until proved otherwise, it is best to assume the market is range-bound. Support and resistance tests are that much more capable of holding tests.[/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.

About that rally… Maybe it’s only a bounce. Tuesday’s late plunge seemed to prove the adage, “the bigger they are, the harder they fall.” Actually, the bigger they are, the more room there is to absorb the fall. If the drop has bearish implications, that should be obvious quickly.[pay]

Pattern points… (Setups and technicals)
Tuesday’s rally was not durable, even before it began. It was launched from an unstable base, exceeded its likeliest objectives (1143.00 and 1153.00), and extended higher overnight instead of intraday.

Then pre-open weakness bottomed before allowing buyers to be refueled (down to 1174.00). That didn’t prevent the morning’s rally to fulfill the highest corrective bounce target (1186.00), but it didn’t prevent it from pushing back down. And the afternoon’s fresh high (to 1190.00) originated during a no-bias environment, requiring its failure.

Buyers didn’t gain traction for their efforts, thanks simply to rejecting the afternoon’s fresh high. But sellers didn’t gain traction either, despite their 27-point late-afternoon dive which bounced in time to end the day testing 1170.00 into the close.

A rally can resume in this pattern only by gapping up above the prior morning’s high (1187.00). Shallower opening strength might make it back to Tuesday’s noon hour low (1181.00), but any higher would be tentative. And almost any further weakness would be likely to trend down.

What’s Next… (Outlook and opportunities)
The crowd starts to thin after noon when many Jewish participants leave early to prepare for the holiday’s evening worship. Liquidity starts to thin, too. Trending becomes difficult to start, and even more difficult to stop… The Market Wrap recording has a much more comprehensive synopsis. Keep checking the blog’s sidebar for its link. [/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 mid-afternoon news about a “Euro-TARP”… was widely-panned. I couldn’t agree more with its critics. Just one thing — the next two hours rallied 25 points to fresh highs. [pay]

Pattern points… (Setups and technicals)
The rally filled the gap back to last Wednesday’s 1159.25 cash session close. Last Wednesday being the two-day FOMC meeting’s announcement, which triggered a plunge into and out of the close. It is also a 50% retracement of the drop from Wednesday’s 1214.00 high down to Friday’s 1102.00 pre-open low.

Wednesday’s gap did not require being filled. But filling it does make some greater retracement likely of the leg that produced it. And the leg that produced Wednesday’s 1159.25 close originated from 1187.00. That’s some leg.

A greater retracement would target at least 1170.00-1171.00, and with potential to 1186.00. Pullbacks meanwhile have room down to 1149.00-1151.00 before sellers would regain traction. Overbought RSIs do suggest that a dip would recover.

What’s Next… (Outlook and opportunities)
The Jewish New Year begins at sunset Wednesday. Many market participants tend to leave well before the close that afternoon, and liquidity evaporates. Low liquidity tends to help price gravitate higher. A downleg were going to develop before Friday, then it should probably happen Tuesday. Look out below if the bias-up signal’s test is rejected, or if the bias-down is triggered. [/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.

Methinks thou doth not protest too much… The difference between Friday’s open and close was 14 points, and basically trended up. That’s a lot of optimism for a session that never broke beyond Thursday’s range; “ineffectual optimism.” [pay]

Pattern points… (Setups and technicals)
Actually, Thursday’s low was probed briefly before Friday’s open, and not by a little. The dip to 1102.00 is a “new Globex trend extreme” that requires being retested intraday. Add that to the outstanding 1077.00 crash low.

Otherwise, Friday was one big delay. It didn’t solidify the bottom, nor did it chip away at resistance above. At least one opportunity to break lower was denied, when recovering from new lows on a Friday could have trapped shorts to fuel a recovery.

The overnight low formed a “V” bottom, and it formed upon retesting Thursday’s “V” bottom. Two “V” bottoms do not make a durable bottom. Further delay would likely rally in relief to either 1143.00 or 1153.00. Otherwise, a break under 1117.00-1119.00 would target 1103.00-1107.00, and probably resume the decline.

What’s Next… (Outlook and opportunities)
Don’t forget to join us for Strategy Session at 9:30am ET Saturday. Its link is in the blog’s 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.

Was that a victory for bulls?… Thursday essentially ended the day where it began, in the 1122.00-1127.00 range. Repeated dips from this range were recovered —  from 1117.50, 1110.25 and 1106.75. Isn’t that accumulation? Well, yes… but, no.  [pay]

Pattern points… (Setups and technicals)
Normally, accumulation and distribution patterns include some stage of the trend probing, without those probes extending. In fact, those probes retrace. So, an accumulation pattern that appears in a downtrend would start bouncing back from its new lows.

But that’s just half the battle. Or, one-third.

It’s not enough to stop trending for the trend to end. What’s important is how that is exploited, if at all. And Thursday did not exploit it. While repeated probes  under the range’s lower-end each recovered back into the range, the range’s upper-end was never probed.

If buyers were absorbing the dips, then they would have been rewarded. They weren’t. That is an important element of reversing direction, because the lower lows are also chipping away at support. So, Thursday’s lower lows only chipped away at support.

One tell formed at the low —  an inverted Head & Shoulders. The pattern tends often to reverse price direction. Almost as often, it extends the current direction. In either case, that first move out of the Head & Shoulders is then reversed back into the pattern, and through it more substantially in the opposite direction. So, once the Head & Shoulders reversal is done, I would expect another reversal back into it, and then through it to new lows.

What’s Next… (Outlook and opportunities)
Sorry for the delay in today’s Trading Plan. As of this writing, the Head & Shoulders reversal has succeeded in probing Thursday morning’s 1136.00 high by nearly 2 points. That’s nearly 10 points above the afternoon’s highs. And it’s about 10 hours too late to gain traction. It might extend higher to 1143.00 or 1145.00, but it is only creating a heavier weight to drop on Thursday’s chipped away support.[/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.