Market Wrap

Loose lips can sink more than ships… Holding multiple tests of 1269.50 support had kept alive the potential for slightly higher highs. Blunt comments from an EU official blind-sided the market to basically repeat Sunday night’s exercise.[pay]

Pattern points… (Setups and technicals)
Tuesday afternoon’s Head & Shoulders made a probe of its 1283.75 high likely. Wednesday morning’s no-bias signal also created an objective above at 1283.00. The mid-morning 20-point plunge ended that detour. Those are not unfinished business above.

Meanwhile, there was unfinished business below at Tuesday’s 1256.00 opening gap and its 1251.00 overnight low. The 20-point plunge and its successor retested them down to 1243.25. Simultaneously oversold RSIs at the 1243.25 low require its retest (update: it was retested in early Globex trading).

With no unfinished business above, and an ongoing decline, perhaps only good news from Japan could avoid trending down Thursday. The next lower targets are 1238.00 and 1222.00. A corrective bounce would likely peak at either 1260.00 or 1270.00 before resuming the decline.

What’s Next… (Outlook and opportunities)
Gapping up Thursday would leave unfinished business below at Wednesday’s new low close. It could run higher, but it would not be a durable recovery. A bounce could test either 1260.00 or 1270.00 before a bigger corrective bounce were underway. Any durable bottom would require probing new lows intraday. And in real-time, that would resemble a new downleg, which it may very well be. [/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.

A lot of buying energy was expended Tuesday… and it produced only a touch of Monday’s “higher prior lows” as resistance (circled green on the chart below). In other words, buyers gained nothing for their efforts. There’s more.[pay]

Pattern points… (Setups and technicals)
The chart also shows Tuesday’s opening gap was left open (circled red). The overnight lows aren’t shown in the chart, but they werent’ touched intraday. Being “new Globex trend extremes,” their eventual test intraday is almost historically required.

A more recent pattern is in conflict. Sort of.

Tuesday’s highs formed a Head & Shoulders (highlighted red on the second chart). The pattern tends to reverse price temporarily, before it resumes trending in the original direction. And the pattern so far has only broken lower.

The last drop into Tuesday’s close bottomed at the Head & Shoulders 1273.00 161.8% extension. The cash session closed at its 1276.50 61.8% extension. A recovery to at least fresh highs at 1285.50 is likely next. That’s where the “sort of” comes in, since the Head & Shoulders recovery tends to be the rally’s final leg.

Wednesday’s open could neutralize the Head & Shoulders influence. Immediately breaking under the Head & Shoulders 1269.50 261.8% extension would invalidate any attraction back up to fresh highs.

That would also take out the lower-end of Tuesday’s mid-afternoon consolidation (highlighted red on the second chart). That would signal a new downleg underway since the consolidation’s upper-end held as support (highlighted green).

What’s Next… (Outlook and opportunities)
This market has been driven by overnight news. Assuming the world is still okee-dokee with the nuclear meltdown underway in Japan, then a firm open would target fresh highs deeper into Monday’s range. But there isn’t much room below to absorb overnight weakness without gaining traction to 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 open maintained a gap down under Friday afternoon’s 1293.50 low, triggering a “session-long decline.” The setup does not necessarily trend down relentlessly. But it does tend to print its session low during the last hour.

Not Monday.[pay]

Pattern points… (Setups and technicals)
Monday’s 1281.00 low printed during the noon hour. Soon after, I noted that “RSIs aren’t deteriorating with price. Beware of a bear trap.” That was at 1282.25. Four hours later 1293.50 was tested before the close.

Probing the morning’s 1295.25 high would have invalidated the session-long decline. The intraday high wasn’t probed, so a probe under Monday’s 1281.00 intraday low is now unfinished business below.

Another pattern also suggests that Monday afternoon’s rally only refueled sellers. Friday morning’s Symmetrical Triangle had forecast that its breakout would be false. And having already met its targets Friday, the breakout was directionally false, and not premature.

The consequence of a directionally false breakout is to reverse more substantially in the opposite direction. Monday’s probe under the Triangle measured only half of Friday’s probe above it.

What’s Next… (Outlook and opportunities)
Resuming the decline Tuesday would triggered under 1287.50, targeting a retest of Monday’s 1281.00 low. Fulfilling the more substantial reversal leg of Friday morning’s Symmetrical Triangle would target 1276.50 and potentially 1268.00.

Early strength Tuesday could fill the gap back up to Friday’s 1299.00-1301.50 close without buyers gaining any traction for their efforts. Recovering 1294.25 would be a good start.[/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.

Natural disasters can force artificial bottoms… Absorbing a black swan event is tough work. But it’s not accumulation. Either its low must be retested to form a durable bottom, or else the low’s retest doesn’t form a durable bottom at all. I wonder what a second black swan would do to the tenuous situation.[pay]

Pattern points… (Setups and technicals)
Sellers had not gained traction by 2:30 Friday when the afternoon’s bias environment started lapsing. That further decreased any likelihood for sellers to regain control before the close.

There was no requirement to trend higher. But entering Friday’s last hour at fresh highs increased the likelihood, anyway. In fact, a surge into the last hour from under 1300.00 probed the 1303.00 bias-up target. But the last half-hour retraced it all.

That last hour was distribution. It was not accumulation. It was not backing and filling. It didn’t even satisfy a required target, just a potential target, making sure there was no unfinished business above. Higher prior lows were tested as resistance. The higher prior lows held as resistance.

If the weekend’s developments don’t have the impact of a second black swan, at least two landmarks above could be in-play – like the gaps back to Wednesday’s 1310.50/1314.75 closes, or Tuesday’s ~1320.00 prior highs. Recovering them without delay may be the only alternative to resuming the decline through this week.

What’s Next… (Outlook and opportunities)
Friday’s last trending was up, and the afternoon’s 1293.50 low preceded its last hour. Maintaining a gap down under 1293.50 would trigger a session-long decline. Living up to its name would end the day back under last week’s lows. And that would all but confirm last week’s decline had begun a much bigger downleg.

Rallying instead would target last Tuesday’s ~1320.00 highs. But sellers could still regain control. Gapping up Monday above 1317.00-1320.00 would be a more credible rejection of the interim drop.[/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.

That’s something you don’t see everyday… An extended consolidation that is still testing two-week old lows.. You don’t see that often in a rally. You do see it often before declines. Closing any lower would confirm.[pay]

Pattern points… (Setups and technicals)
Thursday’s overnight trend down and opening gap down was similar to the week’s prior two sessions. But Thursday differed in two important ways. First is that the open gapped under prior lows. Second is that sellers gained traction for their efforts.

Gapping down under prior lows, and closing under them, entrenches sellers. They can still be invalidated, but it’s much more difficult. And sellers gaining traction means Thursday’s pessimism was not ineffectual.

A third difference was narrowly avoided, and it’s the one potentially bullish element. The open’s low touched Feb 23’s low (circled red in the above chart). That was a “pivotal low,” the low prior to Feb 24’s actual low. Just touching a pivotal low all but ensures eventually touching its actual low. Having that objective outstanding would help the decline to extend into the next session. But Thursday’s late low already fulfilled it.

Lower lows remain possible thanks to Thursday’s ugly intraday pattern (nearby chart). Its multiple bottoms represent “ineffectual optimism” for the multiple failures. Its spikes reflect impatient buying, and not the pessimism of durable bottoms. Some meaningfully lower low remains likely eventually.

Impending weekend illiquidity can cut either way. Friday is not being preceded by a bounce to help absorb weak-handed sellers trying to avoid the weekend’s exposure. Without that buffer, any rally depends upon rejecting Thursday’s drop, and also any follow-through there may be.

What’s Next… (Outlook and opportunities)
The decline’s next lower target is 1278.00, whether by first firming, or simply extending down at Friday’s open. Any bullish path must reject either Thursday’s drop by gapping up above its 1300.00 intraday high, or else by abruptly rejecting fresh lows Friday.

A special note for this template is that Friday could range narrowly, and not trending early could mean not trending at all. Regardless, this being a Friday, the morning’s bias is likely to persist through the noon hour.[/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.