Market Wrap

I think volatility is back. S&Ps up 18 points from Friday’s cash session close, giving back 6 points of it through the afternoon. And this stage is just the market stretching. [pay]

Pattern points… (Setups and technicals)
The retest of last week’s 1258.50 high was fulfilled. Two pieces of unfinished business above were neutralized easily at 1259.25 and 1261.25. And than some. The intraday rally extended to 1272.50.

1261.25 was Monday morning’s bias-up target, but it was never touched intraday. Not directly. The next higher target was 1266.75, and Monday’s close was in the process of testing it as support.

Price slipped further to 1264.50 after the close (circled red). Since 1266.75 is a 61.8% retracement of the intraday range, closing under it would have argued for holding short through the close.

Trending down low enough overnight would form an Island out of Monday’s range. Had that extra slip come sooner, then overnight action would have been predicted to trend down. It’s still possible, but retracing more after the cash session close usually just creates a slingshot effect back up.

What’s Next… (Outlook and opportunities)
A slingshot back up would target 1268.00-1269.00. Any higher would target a retest of Monday’s 1272.50 high, though no retest is required otherwise. Monday’s session was rife with optimism. The post-open shallow pullback stopped 1-2 ticks short of the 1262.00 buy signal. And two bias-up targets were exceeded through the open. Reacting down from a bounce to 1268.00-1269.00 would point down through the morning.[/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.

Sometimes, it’s “out like a lion.” I had just warned, as Friday’s last half-hour got underway, of “zero predictability for sizable last-minute position jockeying into year-end.” The 3-1/2 point plunge would have made my point. But then came a 6-1/2 point surge into the futures close. Let’s hope 2011 doesn’t come in like a lamb.[pay]

Pattern points… (Setups and technicals)
Thursday’s sellers failed to gain traction because 1254.00 held all tests through all relevant timing windows. Friday’s gap down under it – and under the 1252.50 bias-down signal, too – gave sellers another chance. But the bias environment’s exit recovered 1252.50.

The bias environment’s exit nearly recovered 1254.00, too. But in a twist from its role Thursday, it held as resistance through every relevant timing window Friday.

The late plunge doesn’t belong to Friday so much as to 2010. So it is irrelevant. Its low is interesting for bottoming within 1 tick of the afternoon’s 1251.00 bias-down signal. And its close is interesting for having recovered above both 1252.50 and 1254.00.

Friday’s 1257.50 futures close is interesting, too. But it is no more relevant than the plunge several minutes earlier. Any follow-through would be a function of having held 1254.00 support, and not to retest Friday’s futures close. Similarly, a gap would be measured from the 1254.25 cash session close.

What’s Next… (Outlook and opportunities)
Not declining immediately Monday would leave outstanding the potential for probing last Wednesday’s 1258.50 high. Its probe to 1259.25 or 1261.25 would be likely to reverse back down. Back under 1256.00 would become very vulnerable to extending down sharply well into the new year. Back under 1251.50-1252.00 at any time would signal the downleg already underway.

Happy New Year! Here’s to a great 2011 (and especially to volatility’s return). I’m so appreciative of my subscribers, and I look forward to another prosperous and information year… P.S. We’re having a workshop Wednesday evening, details to come.[/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.

One perpetual “benefit of the doubt” gave buyers a pass Thursday. Not that buyers did anything substantial intraday. But bigger selling pressure would have broken support when and where it could have mattered. Bullish hopes – near-term – depend upon sellers not making a more serious effort Friday. [pay]

Pattern points… (Setups and technicals)
Thursday’s selling tested a lot of relevant support. It broke some relevant support, too. But all tests recovered through a relevant timing window. Sellers never gained traction. That gave a benefit of the doubt to recovering.

Of course, buyers never recovered a relevant level, either – not through a relevant timing window. But the burden of proof was not on them since the open gapped down, not up.

A late short-squeeze could have rallied to new session highs. But the only  squeeze-like activity came well past the 3:10-3:20 window. And its surge to fresh session highs ended almost immediately, and was retraced almost as quickly, after taking RSIs to overbought.

Sellers tried – not their best, but they tried – and failed to gain traction by closing under prior lows. It’s not a buy signal, but it is potentially bullish. Triggering that potential at the following open is the surest way to realize it. Delaying an obvious recovery attempt would let sellers try again.

What’s Next… (Outlook and opportunities)
At least 1254.00 was being tested as support into the close. Recovering it earlier Thursday would have been much more productive intraday. Overbought RSIs at the late 1255.75 high are likely to be retested, which would help to launch a more serious rally effort.

The most bearish scenario would test Wednesday’s 1258.50 prior highs. There’s also unfinished business above at 1259.25 and 1261.25. Neutralizing these higher attractions while retesting Wednesday’s reversal pattern would form a bearish Double Top.[/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 session screamed higher roughly 3 or 4 points. I don’t know exactly, I lost track in all the frenzy. The last half-hour’s 3-point plunge was even more exciting. But not much more relevant.[pay]

Pattern points… (Setups and technicals)
Tuesday afternoon’s 1255.50 high printed before its last hour. Then it printed again during its last half-hour. The most recent instance had printed too late for its rejection of Tuesday’s last-minute dip to be relevant. Dipping any earlier Tuesday would have let Wednesday’s gap up trigger a “session-long rally.”

Wednesday behaved like a session-long rally, for the most part. Session highs printed during the last hour. But that was enough reward for rejecting Tuesday’s modest last-minute selling. So Wednesday wasn’t immune to a last-minute plunge that fell back to the morning’s 1255.50 post-open low.

Why rehash what almost happened? Because Wednesday afternoon’s 1258.50 high also printed well before the close, and also was touched again and again. But its sell-off began (barely) before the last half-hour. Rejecting it at Thursday’s open would be relevant. Gapping up above 1258.50 (circled green) would trigger a real session-long rally.

Almost all of Wednesday’s session developed above prior highs. Gapping down under Tuesday’s 1254.00 last-minute low (circled red) could form an Island Reversal. Its eventual retest would be likely, but not before attacking recent lows.

What’s Next… (Outlook and opportunities)
The low-volume environment could  spare us the theatrics of gapping up or down, and simply resume eking out higher highs. Both of Wednesday’s bias environments left unfinished business above at 1261.25.

Wednesday’s late plunge took RSIs to oversold. Until its 1255.00 low were retested, even if overnight, a bounce is doomed to failure. Bouncing first could form a significant top. And this pattern still has a large leg in-store, probably down.[/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.

The flat close masked the morning’s wild swing. But the morning’s swing was wild only because it reversed into negative territory from new highs. Ranging is still otherwise subdued. [pay]

Pattern points… (Setups and technicals)
Monday afternoon’s narrow 2-1/2 hour range wasn’t going to launch a durable rally. That didn’t mean it couldn’t try, which it did. In the process, it neutralized unfinished business above at last Wednesday night’s 1255.75 overnight high.

Gapping open above prior cash session highs created new unfinished business above. Price would have been attracted back up to 1255.50 another day. But Tuesday afternoon’s rally already filled the open’s gap and neutralized its attraction. Closing back under prior highs was almost as bearish at that stage as closing negative.

Impatient buyers neutralized pent-up buying pressure that could have assured a rally the next day. Similar action the prior three sessions (depicted in yesterday’s chart) sold off the next day. Tuesday also neutralized all unfinished business above.

By the way, a new landmark was established due to Tuesday’s new high. Since the interim low was Monday morning’s dip. Now closing under Monday’s 1247.00 low would signal the trend reversing down. Sunday night’s 1245.50 low would confirm.

What’s Next… (Outlook and opportunities)
Recovering intraday dips can resemble accumulation. But it’s just buyers expending energy if the effort doesn’t recovery above a relevant level. It is distribution if the recovery probed a relevant level intraday without closing above it. Even then, it’s not a sell signal – this routine can repeat indefinitely. And avoiding a downleg Wednesday morning would target at least an intraday probe of 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.