Market Wrap

Light at the end of the tunnel… seemed to appear in the debt negotiations. It’s an oncoming train, but it isn’t very frightening. The market meanwhile trekked higher ahead of AAPL’s post-close earnings. A negative reaction to any high-profile earning would be much more frightening than the capitol’s theater. [pay]

Pattern points… (Setups and technicals)
Monday’s hold long through the close above 1300.00 lost confidence when futures dipped after the cash session close. But that did prove to be only last-minute shakiness ahead of post-close earnings. The result was an overnight rally that extended higher intraday.

Was the rally a one-day wonder, or was it a taste of things to come?

The open created a gap back to 1301.00, which will want to be filled, since Friday’s prior highs weren’t recovered until the afternoon. And the intraday high tested critical resistance up to 1323.50, which wasn’t probed until the last hour had begun, and then only briefly. Testing the decline’s 1292.25 target has been pretty productive, already.

Tuesday’s close was in the process of testing a critical level. Wednesday’s session is vulnerable either to extending strongly above its resistance, or else to reacting down violently from it.

What’s Next… (Outlook and opportunities)
There is room for noise to fluctuate around 1323.50 up to 1325.00. Not yet reacting down from 1323.50 – having only consolidated under it – suggests that 1325.00 will be tested, too. Its recovery would extend the rally by 5 points, and possibly by 15 points. But failing to hold the noise range’s lower-end at 1319.00 could snowball into retracing all of Tuesday’s gain, and possibly resume the decline.[/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 afternoon-long rally… expended a lot of buying pressure, without gaining traction for the effort. Extending higher immediately Tuesday would be credible, but not extending higher immediately would at least invite another downdraft.[pay]

Pattern points… (Setups and technicals)
Monday morning was likely to duplicate the “wide-ranging” character of Friday’s expiration. Any early indication otherwise was likely to trend sharply. For example, triggering a bias signal would have signaled trending. Actually, both bias down parameters were being probed well before the open, so exceeding the bias-down target renewed the bias-down. And the morning trended down.

Then the morning ended, upon testing the 1292.25 target  (by 1 brief point).

The only outstanding requirement was to test last week’s 1295.25 overnight low down to 1292.25. Bouncing first from 1297.75  would have refueled the decline so it could extend below 1292.25. But 1292.25 was tested without refueling, making it difficult to extend down.

In fact, a sell signal at 1303.00 was only touched, but not triggered, launching instead a bounce back up to 1301.50.

A rally could get underway because the decline has held a test of its 1292.25 objective. Also because the Wednesday mildly bearish expiration signal did extend to lower lows coming out of expiration. Not rallying immediately would be bearish.

What’s Next… (Outlook and opportunities)
Holding long through the close would have been compelling above 1300.00, and the cash session did close above 1300.00. But it wasn’t compelling enough to avoid dipping to 1298.50 before the futures close. Perhaps a higher close just inhibited ahead of IBM’s post-close  earnings, but that’s an ongoing problem during the quarterly earnings period. A corrective rally could reverse down from 1308.00, or from 1315.00. But no corrective rally is even required before resuming the decline. [/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.

Don’t forget: Saturday’s Strategy Session… It starts at 9:30am ET, and its link can be found in the blog’s sidebar. We’ll do a brief market overview, discuss “Timing Windows,” and then open up the floor to stock requests from subscribers. See you there. [pay]

Pattern points… (Setups and technicals)
Friday morning’s bias tends to persist through the noon hour. Expiration sessions tend to be influenced by that bias through the afternoon. But that doesn’t prevent a lot of price movement in a wide range.

Friday morning’s no-bias triggered after testing the 1312.00 bias-up signal up to 1314.00, putting into play a test of the 1303.00 bias-down signal. The target was quickly met by a steep drop. But all that momentum behind the drop did not overcome the no-bias inhibition.

Similarly, the no-bias inhibition did not prevent bouncing back up to 1312.00. It just prevented breaking above 1312.00. The morning’s bias environment had been exited already back at unchanged, or near enough to it, that expiration was now doubly inhibited from trending.

The afternoon’s no-bias environment didn’t change things. Volatility remained alive, as the 1312.00 bias-up signal’s test reacted down to the new 1304.00 bias-down signal. And trending remained dead, as 1304.00‘s test launched a bounce. Back up to 1312.00 and to 1314.00.

Why would I spend so much time in this Trading Plan discussing Friday’s price action? Because expiration’s characteristics tend to be duplicated through Monday morning. If ranging and intraday volatility aren’t obvious early, then either trending or flat-lining would be likely.

What’s Next… (Outlook and opportunities)
Friday’s Market Wrap was recorded, click here to review it.[/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.

What goes up… Another failed opening rally was reversed down to overnight lows Thursday. This is getting to be a pattern, which means don’t expect to see it happen again, soon. Either resistance has been chipped away sufficiently to allow a rally, or – more likely – unfinished business below is in-play. [pay]

Pattern points… (Setups and technicals)
7:35pm ET Breaking news: S&P Places US ‘AAA/A-1+’ Ratings On CreditWatch Negative. So, what else is new? Just another fill-in-the blank detail, from a list of countries that everyone knows already. In fact, the 7-point spike down it triggered was retraced almost entirely after 30 minutes. Cumulative effects to ongoing downgrades are another story. But the near-term reactions continue to get ahead of things.

Wednesday’s expiration indicator was signaled while prior lows were still being tested. A clear signal would have triggered from either bouncing, or breaking. Thursday’s extension down suggests that the signal is down. This does not define any particular action at any particular time – it doesn’t prevent Friday’s open from bouncing through the morning. But any bounce should resolve down on the way to lower lows.

Speaking of lower lows, 1302.00 has been tested, retested and tested again, so even an obligatory bounce is unlikely if tested again. A retest of 1295.25 could produce a tradeable bounce, either from attacking it down to 1297.75, or from probing it down to 1292.25.

What’s Next… (Outlook and opportunities)
This weekend is a candidate for being anticipated fearfully. Fear can cut both ways, motivating a rush to the exits, as often as motivating a rush to own. A rally into the close could originate from fresh lows that have been probed throughout the day. Recovering above a prior high into the afternoon could trigger a short-squeeze ahead of the weekend. Otherwise, a less substantial intraday rally would probably attract much more selling pressure. [/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.

Unfinished business above was quickly neutralized… at Wednesday’s open, far above Tuesday’s close. Brief higher highs reacted back down to session lows, and back to Tuesday’s close. Expiration volatility has begun already.[pay]

Pattern points… (Setups and technicals)
Wednesday’s opening rally was doomed to failure, but could have limited its failure to 1320.00. Its next lower objective was 1314.00, which normally could have limited the failure, too. But it happens that simply revisiting 1314.00 triggers a bigger bearish pattern, suggesting a retest of Tuesday night’s 1295.25 low.

Meanwhile, the 1311.00-1312.00 pivotal low (the low prior to Tuesday’s 1308.75 actual low) is being retested, which all but requires testing the actual low.Wednesday’s expiration indicator would have been bearish had the pivotal low already failed. But any lower close Thursday would confirm its bearish intent.

There are two paths higher. One is immediate and temporary, while the other would originate from fresh lows and be very durable. Recovering above 1316.25 and 1317.50 and Thursday’s open would target the 1323.50 area – it could even probe Wednesday’s 1327.75 high – but it would only delay the inevitable decline and exacerbate its effects. Otherwise, a test of 1295.25 that recovers to close back above 1302.00-1303.00 could retest 1339.00-1340.00 before week’s end.

What’s Next… (Outlook and opportunities)
I recorded Wednesday’s post-close “Market Wrap” in lieu of creating charts for today’s Trading Plan. Its link is 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.