Market Wrap

Early to rise, early to bed… Liquidity and volatility often go hand in hand. At least, that’s how they were seen leaving the building late Thursday morning. A 3-4 tick range contained price action around 1332.75 from 11:30 when the morning’s bias environment started lapsing, until the afternoon’s bias timing window triggered at 1:20. [pay]

Pattern points… (Setups and technicals)
The range widened after the afternoon’s no-bias was signaled. A 3-point dip to 1331.00 reacted up to 1333.50. A last-minute spike down fell to 1330.50. Regardless, like the noon hour, the afternoon’s price action can be defined as ranging around 1332.75.

While there’s nothing predictive to be inferred from a slow, pre-holiday session, some news was made. The rally’s next higher objective was 1332.00-1333.00. It’s the new 1295.50. Last week’s intraday probes under the decline’s 1295.50 target all held through the close, robbing sellers of their traction. Now 1332.00-1333.00 has held as resistance.

The similarity to last week’s 1295.50 test may end there, even if 1332.00-1333.00‘s test were to reverse the trend back down. Where 1295.50 held a retest as support overnight Monday, 1332.00-1333.00‘s retest is likely to probe higher intraday Monday.

The next higher target is 1339.50. Unless tested and rejected early Monday, its test might bear more similarity to 1295.50‘s test last week. Almost any negative close after probing new highs at this stage of the pattern would point down sharply.

What’s Next… (Outlook and opportunities)
1339.50‘s attraction won’t be “in-play” until closing above 1332.00-1333.00. The decline’s next lower target at 1281.00 was similar, needing to be triggered by a close under 1295.50. But 1339.50 can be tested Monday intraday, and push price back down.

Wednesday night’s “new Globex trend extreme” at 1337.75 already requires a retest intraday. Oversold RSIs at Friday’s 1328.75 low require a retest, too. Their order should determine the next trend’s direction.[/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.

Immutable laws are made to be broken… Buy every pullback, and hold long into earnings. What could be simpler, right? Beware when the simplest strategies start generating the greatest near-term reward. That’s one sign they’re getting close to ending. [pay]

Pattern points… (Setups and technicals)
Despite the substantial overnight rally, Wednesday was really a trading range. The range can be defined by 1324.00-1329.00. The range began forming at 6:30am, and contained the entire session.

In reaction to earnings released after Wednesday’s cash session close, a post-close surge probed above the morning’s pre-open and post-open highs. But futures closed back under the two prior highs, leaving the 1332.00-1333.00 target outstanding. AAPL’s earnings triggered another surge that attacked 1335.00.

Relentless, un-refueled overnight trending that originates intraday tends to produce an aggressive retracement. The pattern also tends first to produce two intraday higher highs. The aggressive drop’s likeliest timing is during the session’s last 60-90 minutes. Perhaps its delay is similar to the second higher high’s delay, which didn’t come until after the cash session close. But it came. With a vengeance.

The drop to last Thursday’s 1290.25 low has now been retraced back to the prior week’s 1335.75 high. Pretty close. It is unlikely that the round trip’s purpose has been served, or that its sponsorship has been rewarded already. The same can be said for the two combined attacks on February’s highs. New highs targeting 1339.50 and potentially 1346.00 are in-play. The question is whether its path there is direct.

What’s Next… (Outlook and opportunities)
A runaway rally is unlikely with volume slowing during the afternoon as traders leave early for the three-day holiday weekend. A reversal down from probing new highs would still be possible. One other possibility to prepare for is that Wednesday’s buying was exacerbated by the weekend’s impending illiquidity. An immediate drop at Thursday’s open could trend down into the close. [/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.

Never mind… My message in the Market Wrap was to expect no delay in extending the rally, if the rally were going to extend. The afternoon’s action had only firmed into the close. Then price exploded higher in reaction to spate of post-close earnings news. So, now that the rally has extended…

Pattern points… (Setups and technicals)
Monday’s session (highlighted yellow) developed exclusively in negative territory, and almost exclusively under all prior lows. This is pessimism. The session low was in the morning; the afternoon’s rally was not launched from an afternoon low. This is ineffectual.

“Ineffectual pessimism” can still be productive. Obviously. But it does not form a solid basis to launch a durable rally. That’s why Tuesday morning’s rally happened almost entirely overnight. That’s why Tuesday afternoon’s rally (highlighted green) began when the morning’s bias environment lapsed at 11:30. That’s why the afternoon’s bias environment was late.

And that’s why the next rally leg may have already happened, since Tuesday’s cash session close. S&Ps had already tested 1309.25 into the futures close. Post-close action quickly reached 1314.00 (red line).

The next objective was to test 1315.50, which defines Friday’s expiration close (circled red). Holding as resistance then kept alive last Wednesday’s bearish expiration signal. Similar  to Friday, 1315.50‘s resistance is equally relevant now. And similar  to Friday, 1315.50 may be probed intraday without buyers gaining traction.

What’s Next… (Outlook and opportunities)
If 1315.50‘s test intends to extend higher, then Wednesday should close above 1319.00. Otherwise, a close under 1305.00 (green line) is the minimum requirement to signal a corrective bounce has ended, and that the trend has reversed down.

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.

Would a default be that much worse? Certainly worth considering, for sending a message to any remaining politicians that didn’t hear S&P’s warning. If there is still more selling to come, then room to absorb it if it were to come soon. Before too big of a bounce refuels sellers. [pay]

Pattern points… (Setups and technicals)
Monday’s 1301.00 close was still testing the open’s 1301.25 print. Essentially all interim price action developed below, so it might seem to be trapped sellers. That might be true of this setup in an uptrend, which this is not. Monday’s session developed entirely in negative territory, and it was not ineffectual. It is ballast. Keep that in mind, as the market surely will.

Meanwhile, closing above  1295.50 did satisfy a lot of selling pressure without triggering a lower target. Recovering back above 1295.50 after probing Monday’s 1290.25 low would form a durable bottom. A durable bottom could also form from holding a retest of 1295.50 as support after first bouncing to 1305.00 – this latter path would still be vulnerable to extending down, but a second rally attempt would be credible.

Regardless, closing under 1295.50 would signal that new sponsorship had been found to extend the downleg, next targeting 1281.00. Just extending higher without taking more time down here would be likely to fail, and likely to launch a substantial downleg.

What’s Next… (Outlook and opportunities)
Monday’s last productive pullback limit at 1300.00 was probed deeply enough to signal momentum reversing down to at least test 1298.00. A new high before touching 1298.00 was doomed to failure. And 1298.00‘s support has been chipped away, so its test is likely also to test 1295.50. That’s the next lower level with potential to launch a rally overnight or at Tuesday’s open. But beware of 1295.50‘s test turning into a break. That is an inflection point where the alternative to recovering is spiking 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.

Good to the last pop… Expiration strangled Friday afternoon’s price action, which ranged narrowly for three hours. A tumble began at 2:30 when the bias environment started lapsing, and that was that. Oh, except for the 3-point post-close surge into the futures close. [pay]

Pattern points… (Setups and technicals)
Wednesday’s expiration indicator offered context for any bounces through Monday morning. As in a bias-down environment, bounces aren’t avoidable, but they should be absorbed. Absorbed back to the range’s lower-end, which is Tuesday and Wednesday’s 1305.00 low.

Closing Friday above 1315.50 could have invalidated the expiration signal. Friday’s last bar during the cash session was still testing 1315.50. Being the product of expiration, the post-close surge up to 1319.00 is not relevant. That assumes it is rejected through Monday’s open.

Rejecting Friday’s post-close surge will not, itself, reverse momentum down. A downleg must be triggered below 1315.50. Its confirmation must also break under 1310.25. Testing Tuesday and Wednesday’s 1305.00 low would satisfy the expiration signal.

In practice, 1305.00 should be probed down to Thursday’s 1302.50 opening print before any obligatory bounce. And the real objective is Thursday’s 1298.25 low, which should be tested down to 1295.50.

What’s Next… (Outlook and opportunities)
If 1315.50 is not breaking lower through Monday’s open, then a detour to fresh highs above 1320.00 remains possible. But it must be rejected without delay – there happens to a 10:00 econ report – to keep the expiration signal on-track for retracing back to last week’s lows.[/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.