Market Wrap

Corrections come in several flavors. Tuesday’s drop was retraced by 38.2%. A 61.8% retracement would have refueled more sellers. A bigger bounce is still possible while awaiting buyers or sellers gaining new traction.[pay]

Pattern points… (Setups and technicals)
Trending up from a fresh low during Tuesday’s 3:10-3:20 timing window had indicated the next new low would try to bottom. The attempt before Wednesday’s open indicated it would be only a temporary bounce. So the morning’s rally to 1313.75 was retraced into negative territory.

Similarly, Wednesday’s 3:10-3:20 timing window trended down from the afternoon’s 1312.25 high. It’s not a sell signal, but it is context for the next rally attempt. No rally attempt is required, but it would likely be a temporary bounce that launches a downleg. Maybe that’s why Wednesday narrowly avoided closing under 1306.50, which would have merited holding short through the close.

A bounce might be difficult from so close to Wednesday’s oversold RSIs. They make noon’s 1301.50 low require a retest. And its retest could launch a bounce to 1315.00 or 1318.00.

While a bounce would likely fail, it would be vulnerable to gaining traction for something more substantial. Similarly, breaking under 1301.50 support would target 1294.00-1295.00, and then fresh lows down to 1289.50 and 1282.50.

What’s Next… (Outlook and opportunities)
Wednesday’s volatility expended a lot of energy while closing essentially unchanged (relative to Tuesday’s cash session close). That can form equilibrium. Two or three morning trending attempts are attempted, each likely to fail. Gapping beyond a prior high or low (i.e. 1302.00-1312.00) would more likely trend in that 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.

Two days up, one day down… Hardly seems fair, but another up day would have seriously undermined last Tuesday’s trend change signal. Hovering narrowly Tuesday wouldn’t have helped. A significant drop unleashing pent-up selling pressure keeps the trend change signal alive. [pay]

Pattern points… (Setups and technicals)
Ahh, Thursday’s cash session close. The memories. The afternoon’s recovery conserving energy by not probing the morning’s highs, the last-minute bullish Falling Wedge, futures extending down further to create a bullish vacuum.

None of which made Friday’s gap up bullish. Or its refusal to turn negative intraday. As was noted then, gapping up is no way to start a durable recovery.

Anyway, the reason I mention the gap back to Thursday’s 1305.25 cash session close is because Tuesday’s drop filled it. Both of the interim sessions were retraced entirely, along with Monday night’s temporary rally to 1336.50.

This is an inflection point. Either another bounce begins Wednesday morning, or the trend change signaled last Tuesday resumes with a vengeance.

What’s Next… (Outlook and opportunities)
Tuesday’s 3:10-3:20 timing window trended up, and no prior high was recovered. No matter how bearish things seem – even the Globex session already extending down to 1297.50 – beware of recovering 1309.00-1310.00 through Wednesday’s open. Otherwise, the decline remains intact and next targeting 1289.50 and 1282.50. [/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 how to end a month. Gap up, probe highs and generally avoid negative territory without closing back above the morning’s highs. It’s called “ineffectual optimism.” Ramp it up into the close to squeeze the last drop of buying pressure out of the market, and then show them how to start a month the next day.[pay]

Pattern points… (Setups and technicals)
The morning’s high absorbed multiple probes above the 1327.00 target. And multiple sell signals triggered on the way down to 1319.25. The afternoon’s recovery ended at 1327.00 when the cash session closed. Despite then retesting the morning’s 1329.00 high, futures closed at 1326.00.

In short, 1327.00 held. Closing back under 1323.75 would have been bearish. Instead, failing to close above 1327.00 was not bullish.

Buyers didn’t gain traction for their efforts. Except for Monday’s last 5 minutes, the cash session almost closed under the 1325.25 pre-open high. Except for that last-minute surge, Monday’s buyers accomplished nothing that hadn’t been accomplished already pre-open.

Sellers did not gain traction, either. The bounce could still extend higher, by gapping up. Of course, after two days of up vs. three days down, extending any higher would all but require new highs before another drop could begin. So, the decline’s resumption would become very difficult if not underway Wednesday morning.

NQ’s barely probed fresh highs Monday. The balance of its day was spent fluctuating narrowly around unchanged. Speculation remains much more reserved. In any case, its underperformance undermines the credibility of the broader-based S&Ps rally.

What’s Next… (Outlook and opportunities)
Gapping down under 1320.00 would likely trend down sharply throughout the day. A slightly weaker open could still end lower, but probably not without first bouncing to fill the gap back to Monday’s 1326.00-1327.00 close. Maintaining a gap up would put into play 1334.50, and potentially new highs if not somehow rejected by noon. [/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.

Durable bottoms don’t start by gapping up… but corrective bounces do. So Friday’s gap up extended higher, correcting the week’s drop. Sellers barely interrupted, perhaps saving their energy for the coming week.

REMINDER: My weekly Open House is Saturday morning at 9:30am ET in the chartroom. Subscribers are welcome to invite guests. We’ll discuss the week’s patterns, and their meaning going forward. Time will be reserved for chart requests of any market or stock.  Here’s a link just for the event.[pay]

Pattern points… (Setups and technicals)
Multiple opportunities were missed for rejecting the open’s surge to resume the decline. Eventually sellers became marginalized for the afternoon. That didn’t necessarily empower buyers. The opposite of down isn’t up, it is “not down.” And buyers had not created any accumulation pattern. So, the afternoon was likelier to range flat than to trend up.

Indeed, the afternoon did range flat, instead of trending up, which proved that buyers hadn’t created any accumulation pattern.

The afternoon didn’t trade flat at some arbitrary level. It ranged around the 1318.50 target. It ranged around it for three hours. A reaction down would have been more appropriate for an ongoing rally – like Thursday’s last-minute dip. Treading water isn’t accumulation, either.

What’s Next… (Outlook and opportunities)
Regardless of Friday’s bounce not reversing down, I still consider the entire bounce from Thursday’s lows to be a correction. The context is last Tuesday’s trend change signal, and it can be retraced up to 1325.50-1327.00 without buyers gaining traction. Closing back above 1332.25 would suggest otherwise.[/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.

Third day’s a charm… as far as confirming Tuesday’s trend change signal. That’s two more consecutive days of probing lower lows and/or not closing above a prior high. Is it time to refuel? Is there time to refuel? [pay]

Pattern points… (Setups and technicals)
Thursday’s pre-open low required a retest for being a “new Globex trend extreme.” It was also accompanied by oversold RSIs, and the 1295.00 target was only tested overnight. Finally, the muted reaction to Jobless Claims somehow always produces an intraday dive into negative territory.

Neutralizing the attraction below during a no-bias environment helped to form a perfect storm that launched the afternoon’s 16-point rally. Those were essentially the same factors that launched the pre-open rally. The third factor was oversold RSIs. RSIs were oversold again at Thursday afternoon’s low. This time, the condition was intraday, so its retest is required.

Also similar to the morning’s bounce – the afternoon’s bounce expended a lot of energy just to recover unchanged. At least buyers didn’t lose traction by only probing resistance recovered through the close. That preserves energy for extending the rally into Friday’s open. But also similar to Thursday morning’s bounce, fresh highs may serve only to stretch the rubber band before snapping back down into the weekend.

Repeat: Look out below if early strength quickly fizzles, or if session-long strength greets the last 90 minutes from only slightly positive territory.

The same could be said for extending a bounce into the weekend. It would not totally credible. But somehow, this time seems different…

What’s Next… (Outlook and opportunities)
A dip into Thursday’s close formed a Falling Wedge. Its breakout is 1307.25, targeting 1311.00 and potentially 1318.50. Post-close action extended the wedge’s drop by another 2 points. This creates a vacuum that tends to be filled by futures rising. The action tends to slingshot the recovery. Otherwise, just failing to hold 1301.00 through the open would make signal the decline had already resumed. [/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.