Market Wrap

So, is it safe, yet?… The drop from Tuesday’s 1149.00 high fell to 1097.00. It produced the first intraday test of the decline’s 1100.00 objective, which had been put into play Monday under 1145.00. Its reaction up touched 1170.00 at the cash session close, and 1175.50 after it, nearly 100 points above Monday night’s 1077.00 low. [pay]

Pattern points… (Setups and technicals)
Assuming that Monday’s intraday plunge (with or without overnight) fulfilled the crash template, a corrective bounce would now be underway. Not an extended rally, possibly not lasting beyond Thursday morning, before making another run at the lows.

A runaway rally is not likely. Monday night’s 1077.00 low is a “new Globex trend extreme” that requires being retested intraday. It might not be tested for weeks. Until then, any interim rally is only a correction. The unfinished business below may inhibit a rally but not prevent it; it only requires a rally to eventually retrace back to its origin.

By the way, I’m assuming the (up)crash(down) template has run its course. Since the template doesn’t occur often, it may play out differently eventually. And since the template only produced one of its two allowable counter-trend bounces, I have to wonder whether Tuesday’s rally was its second.

Tuesday’s rally didn’t close above Monday’s high, so its buyers didn’t gain traction. The rally was isolated to the session’s last hour, and already expended 80 points of buying pressure. Nevertheless, another down-crash is unlikely – not nearly as likely as was Monday’s – but possible.

What’s Next… (Outlook and opportunities)
Tuesday’s bounce quickly extended to almost 1178.75. But 1178.00 must be recovered through a relevant timing window to avoid a dip, its potential being 1145.00 or 1132.00 – any lower could revive the crash template. Extending the corrective bounce would target 1203.00, 1218.50 or 1243.00.  [/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.

1987 called, and wants its nickname back… Prepare yourself to hear the term “Black Monday” bandied about by news reports – financial and mainstream alike. Not from me. Monday’s plunge does not equate to the capitulation selling of October 19, 1987. That style of price action remains to be seen.[pay]

Pattern points… (Setups and technicals)
A new session low at 1114.75 printed Monday just before the 2:30 when the bias environment started lapsing. A 34-point rally was retraced almost completely. Then fresh lows printed 1109.50 into the futures close.

Trending down to new lows into the close was entirely appropriate for my broader definition of a crash. But the 34-point detour helped to absorb a lot of last-hour selling. And that doesn’t fit any definition of capitulation (or shouldn’t). The late surge itself reflected a lot of optimism – spirits don’t seem too crushed.

Since Monday was the (up)crash(down) template’s 11th day, it should have either up-crashed or down-crashed. It certainly did not up-crash. So, I’m assuming that the template’s down-crash is underway. The next stage should find a flood of sellers who don’t care about valuation, just about exposure.

Since the cash session having closed above the prior  intraday low, while not yet testing the next objective at 1100.00, we were able to consider holding short through the close. But only for liquid futures, ready to cover in case of overnight intervention.

I suggest re-reading last Thursday’s post about why the recovery “flash” portion of a flash crash is unlikely to rescue a crash. (Skip the post’s first two paragraphs.)

What’s Next… (Outlook and opportunities)
The 1100.00 objective could find premature support at 1103.00, which would make the ultimate test 1096.00. In any case, through any relevant timing window, extending under 1096.00 would next target 1065.00, and potentially 1035.00. Back above 1133.00 would target 1145.00… Monday’s Market Wrap recording is here.
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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.

Downgrade, shmowngrade… Wondering whether Friday night’s U.S. debt downgrade marks the end of bad news? Wondering whether the crash template is still in-play? Wonder no more. News from Germany on Saturday essentially invalidates the cause of Friday afternoon’s 47-point, 45-minute surge. [pay]

Pattern points… (Setups and technicals)
At least Friday night’s downgrade could have been absorbed over the entire weekend to soften its blow on Monday. One of those “sold the rumor, now buy the news” things.

There were some glimpses of a bottom Friday, like surging 47 points in 45 minutes (400 Dow points), no doubt exacerbated by oversold RSIs.  The low had printed printed while fulfilling 1168.00, the decline’s next lower objective under 1192.00. The surge almost gained traction, probing two prior highs before falling back. And Friday’s last hour didn’t trend down, which was likely for entering Friday’s last hour under all prior sessions’ lows.

The low’s oversold RSIs already required a retest. Now reports Saturday from Germany are suggesting the 47-point surge’s trigger was erroneous, that Italy’s hopeful news Friday was premature. The rally seemed to know that, or about the U.S. debt downgrade coming, since its consolidation formed a Complex Triangle whose complete retracement is still required.

Throw Germany’s declaration on top, and and my “(up)crash(down)” template (new name, like it?) is still in-play. It should resolve Monday, this being the sequence’s 11th day. Assuming Friday’s low is retested, regardless of how deep the retest, let’s see what patterns develop on the way down and how technicals look when we get there.

What’s Next… (Outlook and opportunities)
I am assuming a retest of the oversold RSIs at Friday’s 1163.25 low, most likely down to 1145.00-1149.00, without yet confirming the crash(down). In case world peace and multilateral agreement were to break out, then a gap up maintained above 1220.00 – i.e. not reversed back under 1212.00 – would target 1237.00, where almost any higher high would confirm the (up)crash 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.

My crash template‘s Aug 4-8 window… has opened. Remember, the setup identifies a vulnerability to crashing, which is also a vulnerability to rallying sharply. Thursday’s steep drop still was not a crash. So, the market should either fall off the precipice Friday and Monday, or else launch an overbought rally.[pay]

Pattern points… (Setups and technicals)
The decline’s next lower target at 1215.50 was tested thoroughly Thursday. It was the central point of a 1213.00-1219.50 range that finally broke lower to 1193.25. The next lower target is 1192.00.

RSIs only made higher lows at the low, and were still oversold, so no bottom there. And Wednesday’s dubious Pivot Reversal did fail as was expected, with as much bearish consequence as a successful setup could have been bullish.

Now comes the Employment Situation report, which is probably a lose-lose proposition. QE3 seems widely anticipated, but higher employment would make that tough politically. So, an initially favorable knee-jerk reaction to good numbers should be only temporary.

If a crash is actually unfolding, then no session of the past two weeks – not even Thursday – should begin to match the damage. And new trending extremes on Friday tend to extend through the weekend into Monday. So, if a bottom isn’t about to form here, then it will form much lower.

What’s Next… (Outlook and opportunities)
Thursday’s cash and futures close(s) were 1196.00/1199.00. An initially favorable knee-jerk reaction to Friday’s pre-open Employment Situation report has room up to 1220.00 before gaining any traction. And that’s at the open. Any lesser strength would be vulnerable to resuming the decline… I recorded Thursday’s Market Wrap, linked here. [/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.

Did the crash template get its up-day? After 7-8 consecutive down-days, S&Ps finally closed positive. Another up-day might invalidate the setup. Meanwhile, we’ll keep monitoring for the potential snap back, or the break down.[pay]

Pattern points… (Setups and technicals)
Wednesday’s session followed the Pivot Reversal form. But it fell short in some aspects. The open’s 1251.75 print was definitely a gap up above both Tuesday’s 1250.25 cash session close and its 1247.75 futures close. But the open never tried to extend higher, so its reversal down into negative territory did not reject much buying. Nevertheless, Wednesday’s close did probe fresh session highs.

Session highs were another aspect that was lacking. While the pre-open high was eventually probed, June’s “higher prior lows” were being tested as resistance, neutralizing its resistance. Stopping short of touching them would have been more bullish, leaving their attraction active. Thursday’s open would have to gap up 35 points, above 1287.00, to gain traction.

And that’s if the bounce were even to resume Thursday morning.

Oversold RSIs at Wednesday’s 1230.25 low require an intraday retest. That situation could have been created only by strong hands. So, any bounce underway is sponsored by weak hands, and is only a correction, potentially limited to tests of 1264.00, 1268.00 or 1273.00.

A pullback has room down to 1245.00 before the bounce loses its momentum. And under 1239.00 would signal a retest underway of Wednesday’s 1230.25 low. Just closing under 1239.00 would renew the decline’s momentum, next targeting 1215.50, 1192.00 and 1168.00.

What’s Next… (Outlook and opportunities)
Wednesday afternoon’s bounce may try to extend higher overnight. The crash template will be concerned only with the close, which should be negative. Probing fresh highs is possible, to whatever degree or for whatever duration. [/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.