Market Wrap

Thursday’s pre-open weakness was in-line… with Wednesday’s expiration signal. Thursday’s rally would be in-line, too, if it resolves down to new lows. If not trending down, then the expiration signal only needs to prevent a rally from beginning through Monday morning, and continue retesting recent lows. [pay]

Pattern points… (Setups and technicals)
Thursday’s last timing window tested 1312.00 as resistance. Its break Wednesday as support had triggered the overnight decline. Closing under it kept buyers from regaining traction. The 1315.50 area’s recovery would have signaled momentum reversing up, but it was barely attacked to within 2 points.

At least three attractions below are inhibiting a recovery attempt. Wednesday’s expiration signal reflects a degree of pessimism just close enough to expiration, that sellers are likely to remain influential. Meanwhile, Thursday’s failure to touch 1298.00 before recovering reflects optimism not normal for a bottom. And the open’s 1302.50 gap down will want to be retested.

Resolving Thursday’s bounce down is likely, and resuming the drop overnight is possible. But I can’t yet discount the potential for trying to extend the rally first. Although GOOG’s post-close earnings disappointed the stock, S&Ps barely downticked. And there was plenty of froth from the intraday rally. Instead the market has been ranging flat-to-higher, which suggests there is some  unfinished business above.

What’s Next… (Outlook and opportunities)
Being expiration, Friday’s open can slide, or it can gap down, in either case breaking under 1307.50 and 1306.00 to signal momentum reversing down. Friday’s open could bounce briefly up to fresh highs at the 1315.50 area and still resume the drop coming out of the open. Not reversing initial strength can marginalize sellers through the day. [/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.

Try, try again… Wednesday’s false start retraced almost enough to renew the recent decline. It certainly didn’t give buyers traction. So long as Thursday’s session doesn’t just range narrowly, any trending into Wednesday afternoon could persist into the weekend. [pay]

Pattern points… (Setups and technicals)
Tuesday’s test of the 1307.50 target held. Twice. So did Wednesday’s. If it is valid as support, then it should attempt another rally Thursday. And if it is valid support, then the rally attempt should extend through Wednesday’s 1318.75 pre-open high. Try, try again.

Wednesday’s pre-open rally was undermined by unfinished business under Tuesday’s 1305.25 low. A fresh low Wednesday was optimistic, piercing Tuesday’s low by only 1 tick, and stopping just 2 ticks short of even touching the 1304.50 unfinished business. Try, try again.

The drop into Wednesday’s futures close found an air pocket down to 1308.50. That was a healthy 61.8% retracement of the rally from session lows. An immediate rally would be credible. It would also leave unfinished business below. That could be satisfied by dipping overnight or early to new lows. And that could be bullish if recovered early, too.

Of course, new lows would be exposed to sellers gaining traction and resuming the decline. This would be all the more possible if Thursday’s open doesn’t rally immediately. That’s what it will take to negate Wednesday’s expiration indicator, which suggests that sellers are in control through Monday’s open.

What’s Next… (Outlook and opportunities)
The unfinished business below Tuesday’s low was 1304.50. Having been attacked so close by Wednesday’s low, it’s probably no longer relevant. Fresh lows should touch at least 1303.00. Almost any lower would essentially target 1281.00. A rally would require almost immediate recovery of 1313.00.

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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.

Quick! Duck! Several consecutive declining sessions have followed several consecutive sideways sessions. It is classic behavior for defensive posturing ahead of coming news. In this case that news is probably the earnings deluge now beginning. Look out below if a 30-point slide didn’t discount enough. [pay]

Pattern points… (Setups and technicals)
Tuesday’s lows probed the next lower target at 1307.50 and closed above it. So, what? Monday’s targets also held as support through the close. A relevant difference is that Monday’s targets weren’t even tested until the last timing window. Not only was Tuesday’s test early, but it also held an afternoon retest.

That only suggests that sellers gained no traction for their efforts. New lows intraday remain possible. Especially since the template being tracked should at least visit 1304.50, which would maintain a symmetry for the current multi-session pullback to react up sharply. How sharply? To probe February’s highs.

Timing is also relevant. A new low Wednesday must recover to close positive to avoid sellers gaining traction. Such a volatile intraday whipsaw is made all the more possible – no more likely, just more possible – by the earning deluge now arriving. Beige Book’s release Wednesday afternoon will help to keep the market jumpy.

What’s Next… (Outlook and opportunities)
Ending optimistically Wednesday – above Tuesday’s 1310.50 cash session close, preferably above Tuesday’s 1315.50 high – would be to end the day bullishly. Having spent several consecutive sessions hunkering down ahead of news, even the release of negative news could be viewed optimistically for getting out of the market’s way. Imagine the effect of optimistic news.

But ending Wednesday at new lows – under 1307.50, 1303.00 or lower – would renew this current downleg’s momentum. That would bust the template whose pattern would require new highs. In its place would be a dramatically steep and deep extension 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.

Optimism isn’t a bad thing, unless it is absorbed… That’s where Monday’s open found itself, reversing the overnight optimism that had tried to extend into the cash session. Monday’s close found itself in a similar situation, bouncing off the late lows. But its post-close retracement absorbed that optimism, making new lows likely.  [pay]

Pattern points… (Setups and technicals)
Monday’s drop to 1317.00 neutralized both the morning and afternoon’s downside objectives. A test of the morning’s 1319.25 bias-down signal was put into play when no-bias triggered after testing the bias-up signal. And the afternoon’s bias-down signal triggered the 1318.25 bias-down target.

Monday’s last downleg probed both objectives. The targets didn’t necessarily hold as support, but they were at least still being tested through the close. Sellers didn’t lose traction, but they didn’t renew the drop’s momentum.

Momentum can reverse up by probing 2-3 points under Monday’s lows and then recovering positive territory as the opening sequence ends. Gapping up above a prior relative high could reverse momentum up, too, but that would leave unfinished business below back to Monday’s 1320.00 close. And that attraction below could resume the decline.

What’s Next… (Outlook and opportunities)
There is noise for room under Monday’s lows down to either 1315.50 or 1313.75. Extending through either after touching it would renew the drop’s momentum, next targeting 1303.00-1304.00. Recovering their test(s) back into positive territory through a relevant timing window could trigger a rally back up through last week’s highs.

Firming only to the 1324.00 area would remain vulnerable to reversing down, targeting 1315.50 or 1313.75. Gapping up through the 1324.00 area would trigger a bigger upleg intraday, perhaps to 1331.00 before reversing back 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.

Do QE programs continue during a shutdown? That’s not why Friday dropped 17 points from the morning’s 1335.75 high. It was the morning’s 1326.00 target, which had been left outstanding through the noon hour. Its attraction below was leveraged by the weekend’s impending illiquidity, and by another lower attraction down to 1319.75. However, this might be a glimpse of market behavior when the Fed takes away the punch bowl,[pay]

Pattern points… (Setups and technicals)
1-minute and 3-minute RSIs were simultaneously oversold at Friday’s 1318.75 low, requiring its eventual retest. Its oversold bounce up to 1325.25 took 1-minute RSI to overbought, so the bounce may have ended.

Did Friday’s sellers steal a page from the play book employed by Thursday’s buyers? The tactic is patience. Thursday afternoon’s short-squeeze setup wasn’t triggered, which left something on the table to extend higher overnight. Now Friday afternoon’s sellers allowed the closing bounce to get overbought.

Notice also that Friday’s 1318.75 low first printed before 3:00. The bounce that was launched just minutes later trended up into the closing minutes. These elements form the basis of a “session-long decline.” The setup could be triggered Monday by dropping through or gapping down under 1318.75.

I’ve painted a pretty bearish picture above. It’s the inverse of my warning before Friday’s open: “The bullish influences are so clear that not trending up this morning would suggest some underlying bearishness preparing to appear later today.” Friday’s sell-off even may have triggered a trend change. So, not trending down Monday would suggest another fresh high was coming.

What’s Next… (Outlook and opportunities)
The 1321.00-1326.00 range is essentially neutral ground. Leaving it in either direction through a relevant timing window would be likely to trend next in that direction. Trending down would confirm that sellers gained traction Friday. But if their efforts weren’t successful, then Monday’s oppen is likely to gap up, and extend sharply 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.