Market Wrap

Try, try again… Tuesday’s overnight plunge was recovered to open above Monday’s lows. Monday’s lows held as support through Tuesday’s last minutes. There was plenty of opportunity to convert the pre-open recovery into a bullish intraday rally. Failing to exploit the opportunity once is not bullish. Failing to exploit it again is bearish. [pay]

Pattern points… (Setups and technicals)
Tuesday morning’s 1314.00 bias-down signal was recovered to signal no-bias, putting into play a test of the 1323.75 bias-up signal. Not rejecting 1314.00‘s recovery through 11:30 made 1323.75 unfinished business above. It was attacked to within 2 ticks by the QE3 surge.

Overbought RSIs at 1323.25 require its retest. Presumably, 1323.75 would be touched at that time. Meanwhile, its outstanding test won’t necessarily prevent a decline. In fact, Tuesday’s reaction down from overbought RSIs retraced all of the QE3 surge from 1314.00. Then fresh lows tested 1309.00.

Recovering 1312.50 and 1316.25 would signal and confirm momentum reversing up to retest 1323.25. But almost any further weakness would next target 1302.00-1303.00 – and either another opportunity to trap sellers, or a new phase of selling to sharply lower lows.

What’s Next… (Outlook and opportunities)
Three consecutive gaps down have closed under the prior session’s lows. Tuesday qualified in its final minutes. A firm open would allow the morning to attempt another rally – to 1323.00-1325.00. Fresh lows testing 1302.00-1303.00 would either rally back significantly, or else extend down sharply to 1282.00. [/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.

There was no gentle path down Monday… The gap back up to Thursday’s close would have been filled if Monday’s open had avoided gapping down. But gapping down (under Friday afternoon’s low) triggered a session-long decline. The setup was fulfilled by printing its low during the session’s last hour. Trending down sharply intraday was another matter, altogether.[pay]

Pattern points… (Setups and technicals)
A session-long decline can also trend down into the close, if fresh lows are printing early enough. Monday’s fresh low was a single errant tick under 1312.00, and printed at the last possible moment, if that early. Instead of trending down, the close trended straight up to test 1319.25.

The last-minute rally was just noise in the range back to the noon hour’s 1319.75 high. All of the late-afternoon’s pent-up buying pressure was released, instead of letting it grow overnight to launch a rally Tuesday morning. And releasing the pent-up buying pressure did not gain traction for the effort by closing above a prior high.

Nothing about Friday’s very last-minute bounce signaled momentum reversing up, and it has nothing to do with the size of the drop. Price rose upward, while momentum did not reverse up, stretching the rubber band tightly. Extending down would next target 1307.00-1308.00.

What’s Next… (Outlook and opportunities)
The rubber band could break upward, instead of snapping back down. That all but requires gapping up and immediately recovering 1330.00. Any lesser opening strength could follow-through, but only temporarily. And a weaker open need not duplicate Friday and Monday’s gaps down in order to extend down sharply.[/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.

Now, that’s a target… Unfinished business at 1354.50 was left outstanding after Thursday’s breakout. Fresh highs touched it Friday morning, neutralizing its attraction. The Employment Situation report exploited the sudden defenselessness, putting the rally’s momentum on defense. Friday’s close met a similar target at 1341.75.

Don’t forget about Saturday’s Strategy Session at 9:30am ET. Its link is in the sidebar. [pay]

Pattern points… (Setups and technicals)
Will 1354.50 be revisited? Probably. Either very early this week, or else very far into the future. In other words: sooner, or else much much later.

1354.50 was part of a consolidation that included the prior day’s high, so it is not a “new Globex trend extreme” that would otherwise require a retest. But it should be tested while filling the gaps back to Thursday’s 1349.50 cash session close, and to its 1351.75 futures close.

And the the gaps back to Thursday’s close(s) are likely to be filled until a prior low is broken. Wednesday morning’s 1326.50 low is the prior low, and Friday’s substantial drop stopped 3 points short of even touching it. Unless it were broken Monday, the attraction back to Thursday’s close is stronger than the decline’s momentum.

Of course, avoiding a test of 1326.50 while coming so close reflects excessive optimism. Closing the cash session above 1339.00-1340.00 would have been bullish, instead of at it (the first time this objective has been tested intraday). Neither is a sell signal, but each provides unfavorable context for trying to recover.

What’s Next… (Outlook and opportunities)
Friday’s close above 1336.00 came the by grace of a late rally. The excess above it is as fresh and vulnerable to failure as was Thursday’s breakout. Friday’s futures close peaked upon testing the afternoon’s 1341.75 bias-up target, similar to the pre-open test of Thursday afternoon’s 1354.50 bias-up target.

Gapping down or quickly sliding under 1336.00 would reject Friday’s late break above it. Ending the opening 15 minutes of volatility under 1333.00 would signal a session-long decline. Avoiding either of these setups would be likelier to fill the gap back to Thursday’s 1349.50/1351.75 closes.[/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-minute optimism or pessimism… ahead of a weighty news item can be counter-trend. Strong hands were already positioned for Friday morning’s Employment Situation report before Thursday afternoon. So, the fresh highs at 1352.75, or the closing bounce pu to 1352.25, can suggest that weak hands are optimistic. [pay]

Pattern points… (Setups and technicals)
By the same token, the afternoon’s interim dip to 1348.75 could have been last-minute pessimism. And that could have been bullish. The dip could have refueled buyers to facilitate a favorable reaction Friday morning. But the dip was recovered by a last-minute bounce into the close.

The last-minute bounce stopped 2 ticks short of touching the session high, and 2 points short of touching 1354.50. That is unfinished business above, left outstanding from the afternoon’s 1349.00 bias-up signal

Having bounced enough to attack session highs, 1354.50 could be tested easily overnight. Testing it and reversing down back under 1349.00 would be bearish – whether overnight or intraday. Quickly breaking or gapping open under Thursday’s ~1345.00 low would be bearish. Almost any other setup would be bullish.

The bigger picture has yet to turn bearish. There has been an opportunity to peak upon testing 1339.00-1340.00, and the scenario would begin to form by closing Friday under 1339.00-1340.00. Closing Friday above Thursday’s 1354.50 high would put into play 1372.50-1373.00. Closing Friday between 1340.00-1354.50 would leave the trend vulnerable.

What’s Next… (Outlook and opportunities)
The breakout above 1339.00-1340.00 is still fresh, and at its most vulnerable to fail. The next major resistance is also fresh, and just above at 1354.50. The Employment Situation report is being preceded by Monster’s Employment Index, a rarity. The bullish scenario may be better off correcting Friday back down to 1339.00-1340.00, instead of trying to extend aggressively higher.[/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.

Getting to the top… and then holding it can be harder than exceeding it. Wednesday did neither, reacting down sharply from its overnight test of the 1339.00-1340.00 objective. [pay]

Pattern points… (Setups and technicals)
An overnight surge had probed prior highs and the 1339.00-1340.00 objective up to 1340.75. It was retraced down to 1328.25 – before the open. The retracement extended down to 1326.50 after the open.

That’s a lot of selling pressure. A lot of weak-handed selling pressure, considering that it was unproductive.

The range’s lower-end held its test before the open, and the 1329.50 bias-down signal held (barely) through the open. Trending was not signaled (it wasn’t prohibited, just not predicted). In the absence of trending, there is ranging. And exiting the open at the range’s lower-end makes a test of the upper-end likely.

That’s what the balance of the morning tried to do, recovering up to 1336.75 at the noon hour’s end. No distributive pattern had developed during a pullback to 1332.00. Closing above 1334.50 allowed holding long through the close.

Fresh highs didn’t print until after the close (right after the close). The post-close surge up to 1338.75 resembles Tuesday’s late action. That didn’t prevent reversing down overnight into Wednesday’s open, but it helped to absorb the reversal. Reversing down overnight into Thursday’s open is unlikely, and unlikely to be absorbed.

What’s Next… (Outlook and opportunities)
Wednesday’s 1340.75 pre-open high is a “new Globex trend extreme” that requires intraday retest. Intraday highs since Friday have held tests of 1336.50. Opening Thursday between them – or just under 1336.50 – would still be likely to test 1340.75 intraday. Opening weakness could be absorbed down to the 1331.00 area, but any lower would simply point 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.