Market Wrap

Did the earthquake exacerbate the drop that was already signaled? Thursday morning’s no-bias signal held at 1334.50, which put into play a test of 1327.75. The drop to 1322.25 fulfilled it. The balance of the session swung back-and-forth, narrowing its range into the morning’s 1327.75 target. The target was still being tested at the close within 1 tick. So, not only did the earthquake accelerate the target’s test, it also prolonged it.

Pattern points… (Setups and technicals)
It always seems amazing how limited of an effect disasters have on markets. A sell-off that might have happened over days may run its course over hours. And premature selling may trap shorts to help fuel another rally leg. But it’s not really amazing. Only one market condition can maintain a negative reaction – a market that is already trending down. But Thursday’s market was only reacting down from a rally when the quake hit.

Thursday’s last 60-90 minute period firmed. But it didn’t trend higher, and didn’t gain traction to all but ensure extending higher the next day. So long as sellers haven’t gained traction, sometimes not rallying can be bullish by leaving something on the table. So, while Thursday’s close doesn’t ensure trending higher Friday, it does leave that door open since sellers didn’t gain traction for all of the energy they expended.

If there’s any lower low here to be had it will fill the gap back to last Thursday close, probably even probe it by 2-4 points. Recovering early enough from fresh lows could still launch a rally into the weekend. Rallying first, without any more dipping, would be vulnerable to peaking upon testing new highs.

What’s Next… (Outlook and opportunities)
Various resistance above begins at 1331.00, then 1332.25 and 1333.50. Their recoveries would be likely to extend higher into Friday’s open. The next higher target area remains 1338.00-1340.00. Breaking lower under 12325.00 would target the gap back to Thursday’s 1321.75 close, probably even probe it down to 1319.75 or to 1317.50.

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.

Another inappropriate-timed downdraft? Tuesday’s drop was recovered overnight. It refuted the drop, but didn’t last. Wednesday’s drop retraced it. Is that just “temporary,” too? [pay]

Pattern points… (Setups and technicals)
Wednesday’s open was already trying to absorb a pullback off the 1336.50 pre-open high. The rest of the morning played defense down to the noon hour’s 1326.75 low. But for a few, otherwise irrelevant ticks, it may as well have been Tuesday’s 1326.00 low.

After probing Tuesday’s 1334.25 interim high, there was no bullish reason for another drop to nearly revisit the 1326.00 prior low. That helps to explain why Wednesday afternoon’s bounce up to 1333.00 peaked upon retracing 61.8% of the morning’s drop.

The afternoon’s bounce was too shallow for too long and robbed buyers of their traction. Holding above 1332.25 through 3:20, or extending above 1333.50 would have launched a short-squeeze to new session highs. The result was quite different. Wednesday’s last tick during the cash session was 1332.00, but futures ticked down to 1328.75.

Wednesday’s closing dip can be rejected, and the earlier rally effort can be reinstated, just like Tuesday’s. Just like Tuesday’s, by gapping up sufficiently. Perhaps also like Tuesday’s, by once again failing, but probably not until testing new highs. Otherwise, the template’s alternative is immediate weakness. And if not recovered just as quickly, immediate weakness Thursday could extend down into and out of the weekend.
What’s Next… (Outlook and opportunities)
Maintaining a gap up Thursday above 1334.25 would make extending to new highs only a formality. New highs above 1338.00 could reach 1340.00 before technical deterioration started signaling a peak. However, not immediately recovering Wednesday’s post-close dip would target last Thursday’s 1322.00 close. And not immediately recovering the fresh low would trigger a multi-session 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.

Q: What do you call a doctor that graduated last in his class? A: Doctor.
Q: What do you call a bias-up signal that triggers by only 1 tic? A: Bias-up.
The afternoon’s 1332.75 bias-up signal barely triggered. But it triggered. And it held through 1:30. Barely… The subsequent dive down to 1327.00 suggests otherwise.  [pay]

Pattern points… (Setups and technicals)
Tuesday’s open avoided triggering a session-long decline. Having absorbed the overnight pessimism, the open rallied sharply. Despite being a no-bias environment, the morning’s 1332.25 bias-up target was quickly met within 1 tick.

In the chartroom we noted how that upleg was comprised of 5-7 uncontested points. Optimism was extreme, and it was retraced by only 38.2% before extending higher into the noon hour.

The bias-up environment didn’t extend higher while awaiting the FOMC Minutes to be released at 2:00. It didn’t extend much higher in the first 3 minutes. Then it spiked down. And the balance of the session trended down, retracing all of the morning’s uncontested rally back down to 1326.75.

Was the afternoon’s bias-up blind-sided by the President’s surprise appearance, exacerbated by being so overbought? If so, then its reaction down should be absorbed, and potential up to 1338.00 remains alive. But if the 1332.75 bias-up signal wasn’t actually triggered, then the press conference reaction down has left no unfinished business above.

What’s Next… (Outlook and opportunities)
New highs, or new downleg? Tuesday afternoon’s next pullback target outstanding was 1326.00, which was met already after the close. A bounce has room up to 1330.00 without buyers beginning to gain traction.

Above 1331.00 would signal that Tuesday morning’s rally was resuming, targeting new highs. Otherwise, breaking under 1324.25 would trigger a downleg targeting at least 1303.00-1304.00. [/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.

Monday’s inside day didn’t offer new clues… other than to narrow down the templates being tracked. Nothing suggests the base may have firmed enough to extend the rally. The only question remains whether extending the rally will even be attempted. [pay]

Pattern points… (Setups and technicals)
Friday’s fresh high wasn’t likely to extend higher MondayFriday’s fresh high was a breakout, and breakouts require confirmation by closing higher the following day. Monday’s don’t often confirm Friday breakouts.

Closing positive was irrelevant, since Monday’s 1330.25 opening print and its 1332.75 opening high weren’t recovered. But a bounce had room up to 1330.00-1331.00 without even beginning to gain traction. Relative to the 1328.50 cash session close, that’s 2-3 points of potential upside left on the table.

Futures did extend up to 1330.00, which does diminish some of the attraction above. At least the afternoon probed negative territory when it fulfilled the 1324.75 target, busting a bearish “ineffectual optimism” setup that had been forming. And 1324.75‘s test, has neutralized the near-term attraction below, as did Friday afternoon’s dip under 1325.75.

Two consecutive unconfirmed breakouts are followed almost as often by a third probe of fresh highs. So, I’m not ready to discount the potential for probing prior highs. An ugly open Tuesday would change that.

What’s Next… (Outlook and opportunities)
Maintaining a gap down under Monday afternoon’s 1324.75 low would make higher highs much less likely anytime soon. Any lesser opening weakness would likely recover intraday. And probing Monday’s 1332.50 high would all but ensure probing new highs.[/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.

“Ineffectual optimism” is no way to extend a rally… It doesn’t get much more optimistic than gapping up, probing fresh highs, and spending the entire session in positive territory. And failing to close above the open suggests it might not get much more optimistic than that. So, Friday’s session offers another warning that this upleg is getting old. [pay]

Pattern points… (Setups and technicals)
We already knew less than 10 minutes into the opening 15 minutes of volatility that strong-handed buyers were gone. Negatively diverging RSIs into the pre-open high weren’t being absorbed. And no volatility so far past the open meant the rubber band needed to be stretched further down, first.

The post-open dip was recovered before filling the gap back down to Friday’s close. That was just one among several indications of weak-handed buyers taking over. Another indication was the 1331.25-1333.00 target area being met in the morning, without extending higher during a relevant timing window. Strong hands would have powered through, or else patiently consolidated until their efforts could be leveraged into a breakout.

None of this is debatable, since it was proved by the afternoon dive back to the morning’s lows. The question is whether weak-handed buyers will double-down with higher highs Monday, or if a corrective dip will begin to refuel buyers.

What’s Next… (Outlook and opportunities)
Friday afternoon’s dive back to the morning’s lows proved that weak hands sponsored the morning’s rally. The afternoon’s dive also neutralized the attraction back down to the morning’s oversold RSIs. That is the equivalent to dumping ballast, so it keeps the door open to another rally attempt Sunday night or Monday morning.

Since Friday’s new high close was the first in two days, it is a breakout. Since the breakout was on a Friday, it is unlikely to be confirmed by a higher close Monday. So, fresh highs Monday would be likely to fail – perhaps from the 1338.00 target?

Otherwise, there is no requirement to trade any higher. Gapping down under Thursday’s 1321.00-1322.00 close would make Friday an Island. And while it would make the drop only a temporary correction, the drop would be productive – targeting 1300.00-1304.00.

[/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.