Market Wrap

It’s two, two, two objectives in one… The decline’s next major objective was 1251.00. It was to be put into play upon closing under 1276.00. Interestingly, there was never a close under 1276.00 to put into play 1251.00. Monday avoided closing under it by one timing window, and not a very convincing one at that. But Tuesday compensated for the delay, closing under both 1276.00 and 1251.00.[pay]

Pattern points… (Setups and technicals)
Tuesday’s 1250.00 cash session close was still in the process of testing 1251.00, so its sellers did not officially gain new traction. Regardless, no higher prior low was recovered to rob sellers of the traction that produced 1251.00‘s test. That is not a buy signal, although it could launch a corrective bounce.

Of greater, growing concern is my “crash” template that is tracking. It allows 10 consecutive declining sessions, with 1-2 exceptions counter-trend (there need not be 2, they must be non-consecutive, and they may not close above a prior close). Then, either the pattern snaps back up sharply, or else breaks sharply lower.

Usually it snaps back up, especially when the count coincides with a test of prior lows. June’s 1252.25 prior low is being tested now, but only on day 7 of the sequence. A counter-trend bounce on Wednesday could expend buying pressure at a level where resuming the count would break under prior lows.

We recorded the post-close Market Wrap. It may be viewed by clicking here.

What’s Next… (Outlook and opportunities)
A lot of selling pressure has been expended already. A major objective is being tested as support. And even the bearish scenario’s “crash” setup is overdue for a counter-trend session. None of which requires a bounce, but each of which increases the vulnerability to a bounce.

S&Ps have extended down already to at least 1244.25 after Tuesday’s close, a “new Globex trend extreme.” Recovering enough overnight to gap up Wednesday would leave the unfinished business below outstanding to attract price back down after the counter-trend session. Otherwise, ranging widely around 1251.00 Wednesday may only refuel sellers, too. [/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.

All unfinished business below… has been resolved. And the decline missed an opportunity to extend. None of which is a buy signal. While it does make fertile ground for a buy signal to form, waiting too long will just resume the decline anyway.[pay]

Pattern points… (Setups and technicals)
Last week ended with a sentiment extreme at 1278.50 that required a retest. It had formed during an attack on 1277.00-1278.00, which had been put into play by Wednesday’s close under 1309.50. Then Monday morning’s rejection of both bias-up parameters put into play the two bias-down parameters at 1285.00 and 1278.25.

They were all neutralized during Monday’s first half-hour.

1276.00 was tested in the process. Closing under 1276.00 would put into play the decline’s next lower objective at 1251.00. Despite having nearly all day to extend under 1276.00 – or to bounce and then fall back under 1276.00 – Monday’s close held 1276.00 as support.

Actually, 1276.00 held as support because of a rally back above it when the afternoon’s bias environment lapsed. That’s one timing window. As with neutralizing unfinished business below, it does make fertile ground for a buy signal to form. But it is not a buy signal – at least, not yet.

What’s Next… (Outlook and opportunities)
1282.75 equates to Monday’s cash session close, and it was above Friday’s low. It’s not a buy signal, and it doesn’t negate the trend’s new low close. But recovering from another new low intraday to close positive would form a bottom. Otherwise, the trend remains 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.

Saturday’s Strategy Session begins at 9:30am ET… you can log-in up to one hour prior. We’ll cover any stock requests, and other market analysis. I’ll see you there! [pay]

Pattern points… (Setups and technicals)
Like Thursday, Friday’s close was another new low close, maintaining the decline’s traction. Also like Thursday, Friday’s intraday bounce neutralized any unfinished business above – in this case, it was the gap back to Thursday’s close.

In the process, the s 1301.25 corrective bounce target was met within 2 ticks. The portion spent back above prior lows was brief. And the portion spent in positive territory didn’t last into a relative timing window, so a recovery never gained traction.

1277.00-1278.00 had been attacked at the morning’s lows, but not touched. It does not require being retested, except for the “sentiment extreme” that was left under 1280.00. Having probed positive territory in the interim, there is no bullish reason to retest the sentiment extreme.

A recording of Friday’s post-close Market Wrap is here.

What’s Next… (Outlook and opportunities)
Obviously, much relies upon weekend movement in the debt situation. The House will try to hold its rescheduled vote Friday evening. I think the real nail biter will be when the Senate sends its mark-ups back to the House. If the House’s enough-is-enough crowd didn’t like their own chamber’s first two versions, then they won’t know where to begin with reconciliation. So, House passage over the weekend should be good for a temporary relief rally. [/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.

Breaking News: The House vote has been delayed. Okay. The announcement came two minutes prior to the maintenance close. S&Ps spiked down 5 points to 1292.25. The knee-jerk reaction may have been exacerbated by the impending illiquidity. And it may be short-lived, since the vote is now rescheduled for later in the evening.[pay]

Pattern points… (Setups and technicals)
A corrective bounce targeted the 1310.00 area. It was probed to nearly 1313.00. The afternoon’s decline targeted 1301.00. The 1295.75 pre-open low’s retest was already likely.

The new bounce target was satisfied, and the decline’s new targets were satisfied. No unfinished business above. No unfinished business below.

No unfinished business below, except that Thursday’s close was a new low. Sellers gained traction for their efforts. Some sort of lower low is required – whether a momentary dip, or a protracted decline. So, no interim bounce will gain traction.

A momentary dip could follow a gap up Friday. Recovering the dip to close back above the opening gap’s high would form a bullish Pivot Reversal. Alternatively, several sessions could probe lower lows, without extending down, to form a bottom. Otherwise, a protracted decline is likely.

Meanwhile, a heads-up: The NDX-Dow-S&P relationship have formed the basis of a bottom signal (S&Ps outperforming the Dow and underperforming NDX). No signal would be triggered prior to Friday’s close, at the earliest. I’ll discuss it in the chartroom throughout the day, and in greater detail in the next Trading Plan if triggered.

What’s Next… (Outlook and opportunities)
A relief rally would be likely in reaction to a credible debt deal. Gapping up above Thursday’s ~1313.00 high could extend higher into the weekend. Any shallower gap up would be likely to fail, as would any rally after gapping 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.

Knock, knock. Who’s there?… Margin. Hello?… Three consecutive sessions of “ineffectual pessimism” had created fertile ground to launch a rally Wednesday. The alternative would not be pretty, and it was not. [pay]

Pattern points… (Setups and technicals)
Wednesday’s cash session close equated to 1300.00. It was just last Monday that 1300.00 was recovered after testing the decline’s 1292.25 target. And closing above 1300.00 had merited holding long through the close, which extended up to 1324.00 at the next day’s high.

The more things change…

Now 1300.00 is being tested as support after dropping 28 points intraday. Futures extended down to 1298.00 (allegedly on a multi-billion dollar sale of S&P futures). The post-close excess pessimism offers some buffer to absorb immediate selling pressure. So does oversold 1-minute RSI, in the context of 3-minute RSI diverging positively.

Probing lower lows overnight could recover before Thursday’s open, but not without creating unfinished business below. Regardless, probing lower lows overnight need not recover, at all. More on that later…

Just closing under 1309.50 now indicates that last week’s rally was only a correction. And the correction is ending. The close above 1323.50 that had created potential into the 1370’s? No second consecutive higher close ever confirmed its breakout, and now one never will. Last week’s rally has been retraced too deeply to be only a correction, so it must have attracted strong-handed sponsorship for a new downleg.

I don’t like several things about that. 1. Last Friday’s 1347.75 pre-open high was never retested intraday. 2. The gap back to Friday’s 1341.00 close was never filled (despite Monday’s big intraday recovery having peaked pessimistically short). And 3. three consecutive sessions of “ineffectual pessimism” gained traction.

Wednesday’s drop may have gotten ahead of itself. A bounce could test 1309.50 as resistance, or closing back above it could retest 1323.50. But any bounce is just a temporary correction. No bounce is required – Thursday’s open could gap down sharply and extend down intraday.

What’s Next… (Outlook and opportunities)
Extending down at all Thursday morning should gap down. So, not gapping down at all should produce a bounce. A bounce could peak intraday upon testing 1310.00, or extend up to 1323.50 into Friday morning. But the next major objective under 1291.00 would be 1277.00-1278.00.[/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.