Market Wrap

Ladies and gentlemen, the world’s briefest trend change! Friday’s bearish signal already ran its course, according to Tuesday’s close. The last one didn’t last much longer. Evidence of a strong bull? Or, not a lot of opportunity for buyers to refuel. Regardless, we shouldn’t ignore how quickly the second bearish trend change was signaled after the first had ended. [pay]

Pattern points… (Setups and technicals)
Does Tuesday afternoon’s suspicious bias-up signal portend the recovery losing steam? The bias environment was exited back under the bias-up signal to invalidate its target. Another rally effort then failed, too.

But the earliest a sell signal could trigger was under 1302.00. And it was only touched at the afternoon’s low.

Meanwhile, Tuesday’s close was a new high. Its open had recovered Friday’s 1291.50 trend change signal (red line). That was one day too late to invalidate the signal. So, the close above its 1298.00 prior high signaled the trend change had ended.

The prior week’s trend change was unusually brief. Will this instance repeat the brevity? RSIs diverged negatively into the high’s Double Top. Notice in the above chart that RSIs diverged positively into Friday’s low. Not shown is Sunday night’s lower lows. Similarly, Tuesday’s negative divergence won’t necessarily prevent a brief new high.

Here’s an interesting chart, comparing Tuesday’s S&P and NDX highs to each of their prior highs. NDX had underperformed during Friday’s fall, and the underperformance repeated at Tuesday’s high. S&Ps could play catch-up with NDX – or, catch-down, as the case may be. Dropping back under its two prior highs, under 1295.25, would signal momentum reversing down.

In any case, more speculative shares are concentrated in the NDX. So, its underperformance suggests that optimists are becoming guarded, while still buying. That relationship typically precedes a bigger downturn.

What’s Next… (Outlook and opportunities)
Early overnight Globex action has dipped. So far, the low has touched the Double Top’s 61.8% target at 1300.00. Its 161.8% target is 1296.75. Either is capable of launching one more probe of new highs. Waiting to recover until Wednesday could leave a gap down to inhibit a rally from gaining traction. Not recovering at all could turn Tuesday into an Island, initially targeting 1284.25.[/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.

Kicking cans down the road doesn’t change the destination, only its path. Recovering 1277.00 may have delayed the decline’s resumption. Recovering 1285.00 would have set-up a bigger rally to new highs. Either way, the near-term potential is up.[pay]

Pattern points… (Setups and technicals)
1277.50 was Monday afternoon’s low. And price action trended up into Monday’s close. So, spiking or gapping down under 1277.50 (red line) would trigger a “session-long decline” setup.

Oversold RSIs at Sunday night’s 1262.25 low (highlighted yellow) make its retest likely. Not required, as is the case when this setup appears intraday. But its retest would be the objective of any session-long decline worthy of the name – probably down to 1257.25.

While Monday’s bounce could extend higher, the afternoon’s recovery (circled red) makes that difficult. It recovered all the way back to session highs – but no higher. That’s noise, and buyers gained no traction for their efforts. Nevertheless, early strength would suggest the can was being kicked a little further down the road anyway.

What’s Next… (Outlook and opportunities)
If Tuesday’s open is not immediately under pressure, then Monday’s bounce is extending to 1289.00, and potentially to 1291.50 (circled green). That would test the 1290.75 trend change signal triggered Friday. But it’s too late to be invalidated, and any bounce is considered just that until recovering 1298.00.[/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.

Finally. In more ways than one? Friday’s drop proved that Wednesday and Thursday’s price action was distribution, and not chipping away at the highs. The next 30 points either way depended on one or the other. Already diving 30 points intraday suggests that may be the least of it.[pay]

Pattern points… (Setups and technicals)
Friday morning’s 1272.50 low was probed a little after noon, and a little more before the close. The burden of proof on buyers was to rally off of it. So, holding support in this instance is bearish. Sellers didn’t gain any extra traction – but they just needed to avoiding losing any. And they did avoid it.

It’s not highlighted on the chart, but notice how Friday’s lows formed a “Falling Wedge.” That tends to resolve down sharply when it appears in a downtrend.

Three points to make about the chart: 1) Thursday’s new high created a new prior low close, which clearly broke. This signals a trend change. It broke a lot, as did the last one, so its follow-through may be limited.

2) Another trend change would be signaled under the 1268.00 area. That’s meanwhile support. Be prepared for a potential obligatory bounce, unless broken early.

3) 1277.00 was Thursday’s target. The rally from there came too quickly for there to have been accumulation. (This was one reason why we were looking for the other stage of the bearish template.) Revisiting it so quickly after it had been productive in the interim suggests that it’s not going to offer much support this time.

What’s Next… (Outlook and opportunities)
A last-minute drop (literally, the last-minute of futures trading) from 1274.00 to 1270.50 could be a taste of things to come. Somebody knows something? Look out above Sunday night if they’re proved wrong.

Otherwise, the Falling Wedge in a downtrend tends to resolve by extending down sharply. That often runs out of energy quickly, but from much lower levels. The effect might be mitigated over the weekend, but I wouldn’t otherwise consider getting long without first recovering 1278.00-1279.00.  [/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.

It’s a game of chicken… Breaking Wednesday and Thursday’s 1291.00-1296.00 range will produce the next 15 or 30 points of trending. The open’s surge to 1298.00 and its afternoon twin reflect buyers making their move. But reversing back into the range only reveals the weakness of their sponsorship. Is it time for sellers to take a turn?[pay]

Pattern points… (Setups and technicals)
1296.00 resistance deserved to be probed at least momentarily for all of its testing Thursday. So it was probed. Twice. Neither probe came during a relevant timing window, when buyers could have gained traction. So each probe was retraced.

This is a clue that the market has been distributing. Buyers are undermining their own efforts by expending energy when it can’t be effective. The last chance to prove otherwise may be Friday morning, by extending higher without retracing.

Emphasis on that last part about not retracing. This being a Friday, the morning’s bias is likely to extend through the noon hour. That would not be a false breakout. So, another new high’s quick failure could be the rally’s last straw.

Sliding through 1291.00  would indicate the consolidation has been distribution. and it would leave no unfinished business above. Its support has been chipped away enough to make its break likely if tested again. It may be unavoidable if Friday’s open isn’t already rallying.
What’s Next… (Outlook and opportunities)
Overnight action is attacking 1291.00 support. This may be bullish, being too much selling pressure, too soon. Recoveries previously this week weren’t worried about the weekend’s fast-approaching illiquidity. But that would require a recovery before 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.

On to the next order of business… FOMC has come and gone, but Thursday’s news flow isn’t any less disruptive. If the new high close still can’t find a reason for falling to new lows for the week, then another upleg is underway.[pay]

Pattern points… (Setups and technicals)
Last week’s trend change signal  has officially run its course. It was pretty productive, for the brief time it was in effect. Closing above 1291.00 neutralizes the influence of having closed under 1286.50.

Of course, the trend change signal can be restarted immediately. It requires breaking back under 1286.50 through Thursday’s next relevant timing window – the morning bias. That would also reject Wednesday’s new highs, which is terribly bearish at this stage of this pattern.

Rejecting new highs could have been a one-day affair. Turning the slightest bit negative intraday would have opened an air pocket below. At least sellers didn’t expend any energy unnecessarily, like by probing below into prior sessions. So rejecting new highs still could be a two-day affair.

Another fresh high need not be probed first, but it would need to be rejected quickly. Regardless, sliding Thursday morning would be a credible retry at dropping to new lows for the week under 1277.00.

What’s Next… (Outlook and opportunities)
Not quickly rejecting a break higher would be vulnerable to extending higher. Vulnerable, not necessarily likely. Nevertheless, maintaining fresh highs Thursday morning would marginalize sellers, and put into play 1310.00 and 1324.00.[/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.