Market Wrap

Fallen, and can’t get up. Repeatedly dipping to 1325.00 overnight bled into Tuesday’s open, and lasted through the day. It would be premature to consider sellers in control. But Monday’s confirmation of Friday’s breakout was clearly premature. And possibly wrong.[pay]

Pattern points… (Setups and technicals)
Tuesday afternoon’s drop fell back to the morning’s 1322.25 low, but no lower. The interim bounce had not probed any prior high, so the selling was only noise. Sellers expended lot of energy without gaining any traction for their efforts.

Then a bounce into the close expended buying pressure. And it retraced 61.8% of the drop, without closing any higher. Its buyers gained no traction for their efforts, either.

Tuesday morning’s bias-down signal triggered under 1325.00. Despite an interim bounce up to 1328.00, the bias-down environment was exited back at 1325.00. Or under it. But not above it, which would have invalidated the 1318.50 bias-down target. This would be the minimum objective of any break lower.

What’s Next… (Outlook and opportunities)
Trending will be difficult to start if attempted from within Tuesday afternoon’s 1322.25-1328.00 range. Opening Wednesday above 1328.00 would target new highs at 1332.00-1333.00. Any weaker opening strength would be vulnerable to reversing back down to and through Tuesday’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.

What are the odds? A Friday breakout, confirmed on Monday. It’s not normal. Immediate weakness following the close is trying to get back to reality. [pay]

Pattern points… (Setups and technicals)
Breakouts on one day must still be confirmed by a higher close the following day. This helps to filter out excessive optimism that isn’t durable. And it helps to filter out Friday short-squeezes, which are more about covering ahead of the weekend’s illiquidity.

Friday breakouts are rarely confirmed, by a higher close on Monday. So, Monday’s higher close is curious.

Plenty of characteristics undermined Monday’s otherwise strong close. Only 1-minute RSI was overbought at the high, not 3-minute. The cash session close was still in the process of testing the 1330.00 objective. And Monday’s gains weren’t very impressive, let alone breakout quality.

But this is the biggie: the 1327.75 futures close was not positive on the day. In fact, a reaction to the FDX warning sent S&Ps back down to the 1325.00 overnight low. Which has been holding for more than an hour. This is not just a knee-jerk reaction.

Absorbing the drop and recovering Tuesday would give the rally every benefit of the doubt for being able to extend higher. Otherwise, Friday’s breakout would be considered excessive optimism. And Monday’s “confirmation,” too.

What’s Next… (Outlook and opportunities)
Exiting Tuesday’s open under the 1325.00 area would reject Monday’s rally. By implication, that would also reject Monday’s confirmation of Friday’s breakout. Closing under Friday’s 1320.50 noon hour low would reject its breakout. But closing back above the 1330.00 area would suggest the rally was extending 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.

That’s why we call them “patterns.” Two consecutive ineffectual pessimism days don’t happen by chance. They’re followed by a third – two and one-half, actually. Another gap down, and then a recovery to new highs. Friday’s was shallower and faster than usual. Nevertheless, its upside potential is largely satisfied.[pay]

Pattern points… (Setups and technicals)
The expected pattern for Friday deviated in two minor ways. 1) The gap down was likely to extend down first, before recovering to new highs. And 2) the new high was likely to be rejected by a steep afternoon drop to fresh lows.

A steep drop to fresh lows is still possible, since all of Friday afternoon’s buying was unproductive (the afternoon’s new high failed to close above of the morning’s 1327.00 high). Unproductive buying doesn’t point momentum down, but it does make a higher high likelier to fail.

A higher high is likelier to fail also because Friday breakouts tend not to be confirmed by a higher close Monday. And Friday’s close was the first above its four-day range.

At least a temporary new high is possible because a “close quarters” Double Top is in-play. It formed from Friday afternoon’s quick test and retest of 1328.75 while RSIs diverged negatively. The pattern resolves in a new high after meeting its pullback target of at least a 61.8% swing. Friday’s last-minute dip to 1326.00 already met it.

What’s Next… (Outlook and opportunities)
Gapping down Monday to test the setup’s 1323.00 261.8% target could still recover up to 1332.00-1333.00. A real reversal there would target 1306.00-1307.00. Regardless of an intraday high, just closing under 1324.00 would also signal that Friday’s temporary buying pressure had peaked. Rejecting an intraday high back under 1324.00 through a relevant timing window would prove it already. [/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.

There’s a whole lotta selling goin’ on… And almost as much buying. The selling is being absorbed, mostly. Buyers are gaining no traction for their efforts. Quickly absorbing any opening weakness could keep the ranging alive, perhaps even probe a new high. But it’s day-to-day now when the downleg begins.[pay]

Pattern points… (Setups and technicals)
It’s called “ineffectual pessimism.” Two consecutive sessions have gapped down, probed the prior low, and spent their entirety in negative territory – only to close back at or above the opening print.

Ineffectual optimism is potentially bullish because its sellers don’t gain traction. But buyers don’t gain traction either, so the next rally leg is a product of sellers having run out of steam. It would only refuel sellers for a bigger drop.

More often, two consecutive sessions of ineffectual pessimism are followed by a third. The third opening drop also avoids gaining traction, and often recovers, albeit usually for one last time.

This being a Friday, the morning’s bias is likely to persist through the noon hour. Also being a Friday, attempting to trend in the morning without success, could reverse into the close.

What’s Next… (Outlook and opportunities)
Early Globex reaction to Egypt’s position-jockeying kept alive Thursday afternoon’s volatility. It also remained within Thursday afternoon’s range. Trending attempts remain likely – with tests of 1306.00 below and potentially 1324.00 above – but maintaining a breakout is not likely if not started at the open.[/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.

Wednesday’s extra vulnerability to ending down was averted only by a late surge. But more damage was done to support, and no business was left unfinished above.[pay]

Pattern points… (Setups and technicals)
Wednesday’s late surge from testing 1315.50 didn’t start by 3:10-3:20. It didn’t even start by 3:30. The late surge started when the position-squaring window started lapsing at 3:52-3:53. That was too late to be sponsored by strong hands.

Buyers gained no traction for the energy they expended. The cash session close equated to 1318.75, the afternoon’s prior high. The post-close surge to 1320.75 settled back at 1318.75. That’s a long way off the 1311.75 low one hour earlier. The late recovery may have been only relief rally when it became too late for the decline to resume.

Wednesday’s entire session bordered on being “ineffectual pessimism,” which could be bullish from a contrarian perspective. Gapping down and ranging entirely in negative territory, probing lower lows. But instead of just recovering back above the morning’s lows, the late surge has already released all the pent-up buying pressure.

What’s Next… (Outlook and opportunities)
If the “ineffectual pessimism” is influential, then Thursday should gap up. Its objective would be 1324.00 again, whose test remains likely to push back down. Otherwise, immediately rejecting the surge from 1315.50 and extending under the morning’s 1314.00 lows would target 1306.00 “lower prior 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.