Market Wrap

Oversold, meet overbought… Friday’s late rally produced a new high close. No recovery at all would have been bullish. Now that pent-up buying pressure has been relieved. [pay]

Pattern points… (Setups and technicals)
Friday’s pre-open plunge bottomed while RSIs were still oversold. Higher oversold, but still oversold. That was strong hands selling. The intraday tests of 1216.25 support couldn’t be bothered to probe 1216.00, despite RSIs deteriorating throughout. That’s weak hands buying.

The late-afternoon rally came after 2:30 and didn’t exceed the morning’s high until 3:30. More weak hands. Strong hands would have begun trending at the afternoon’s bias environment, or before the last hour. No wonder that RSIs diverged negatively at the high.

1227.25‘s “new Globex trend extreme” requires a retest intraday. Closing above the 1228.00 area would trigger a new upleg (targeting 1238.00, 1242.00 and 1247.00). Holding a test of 1228.00 would put into play a new downleg (targeting a break under last week’s 1171.00 low, for starters).

What’s Next… (Outlook and opportunities)
A session-long decline setup could be triggered by gapping down Monday under Friday afternoon’s 1217.75 low (red line in the above chart). That’s rare on a Monday, even after Friday’s late-afternoon weak hand rally. But that would be the only way to neutralize the attraction to Friday’s 1227.25 pre-open high.

Likelier is a more limited opening dip. Friday’s last-minute action formed a close-quarters Double Top (circled red). Either its 61.8% or 161.8% pullback (1222.00 and 1220.00, respectively) would launch a new upleg. Its target would depend upon the pullback’s low, but its minimum objective would probe 1228.00.

Wednesday-Thursday’s relentless, optimistic rally has expended a lot of buying energy. It’s unlikely to reverse down on a dime. But it could reverse down on a quarter, and rejecting a morning probe of fresh highs could look very different at the close. [/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.

New highs, and then what? The three-week long pullback ended just two days ago. The trajectory since then hasn’t been relentlessly steep, but its pullbacks have been relentlessly shallow. [pay]

Pattern points… (Setups and technicals)
Optimism ahead of Thursday’s 10:00am econ report took price back up to the 1211.75 pre-open high. Almost. It was optimism, but the optimism wasn’t rampant, and that left more room to react favorably to the news.

Optimism ahead of Thursday’s close was also kept in-check. Largely. The afternoon had ranged 2 points either way around 1219.50 between 1216.75-1221.75. Firming into the cash session close added 2 points to the range’s upper-end. It was optimism, but it wasn’t rampant.

Like the morning’s rally, it leaves room to react favorably to the pre-open Employment Situation report. Alternatively, it also creates an anchor for a recovery in case the reaction is negative. So, a positive reaction isn’t required and a negative reaction isn’t likely, but a negative reaction would likely recover.

An immediately favorable reaction could have the least bullish effect. A lot of buying pressure has been expended since gapping up from Monday’s close. There was no refueling dip Wednesday or Thursday. A shallow favorable reaction up Friday might not get too far for too long before getting very heavy, very quickly.

What’s Next… (Outlook and opportunities)
A pre-open test of new highs around 1228.00 would help to prevent sellers from gaining traction on any reaction down. A negative reaction has room down to 1218.00 before becoming unlikely to recover at all.

These levels will be important, because the 8:30 report’s initial reaction might not last long. Two more econ reports are due simultaneously at 10:00.

This being a Friday, the morning’s 10:15 bias signal is likely to persist into the afternoon. Triggering a bias-up could marginalize sellers for the day. And new highs entering the weekend tend to extend higher coming out of it.  [/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 narrow sideways ranging, through multiple timing windows, reflects a market that is comfortable with its pricing. That tends to be self-fulfilling, until it’s not.[pay]

Pattern points… (Setups and technicals)
But for one brief surge (highlighted green) between timing windows, Wednesday’s session only ranged narrowly. Two or three consecutive narrowly ranging timing windows make another likely. Thursday’s open might gap up or down, or not at all. Regardless, its timing window (i.e. Thursday morning) would then be likely also to range narrowly sideways.

Extending higher without delay, and not ranging narrowly, would suggest patient buyers were giving overly-optimistic buyers more rope. Rallying into and out of Friday’s Employment Situation report is possible, but not likely in this pattern.

Ignoring Wednesday’s distribution in order to gap up or trend higher would confirm the three-week old decline had ended. But Wednesday’s rally left unfinished business below: the gap back to Tuesday’s 1179.50 cash session close, and oversold RSIs at Monday’s 1172.25 low. And Wednesday’s rally emerged from a “Complex Triangle” (described here Monday).

A pullback Thursday could still be absorbed to refuel the rally for a positive reaction to Friday’s Employment Situation report. Extending higher wouldn’t necessarily be bearish – at least, not necessarily immediately.

What’s Next… (Outlook and opportunities)
Gapping up only to 1209.00 might not be far enough away from Wednesday’s range to avoid reversing back down. But its recovery would put into play 1217.00, and its recovery would target new highs at 1228.00.

A gap down has room to 1199.00-1201.50 without triggering a bigger downleg. Even then, a bigger downleg would target 1189.00-1190.00, and could refuel another upleg targeting 1228.00.

Thursday’s jobs data can either reinforce Wednesday’s strong ADP report, or disappoint. Neither would leave much upside for the afternoon while awaiting Friday’s Employment Situation report.  [/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.

Still close, and still no cigar… Monday afternoon’s false breakout was rejected overnight. Tuesday’s retry was rejected through the close. Can sellers do any better for themselves probing fresh lows? [pay]

Pattern points… (Setups and technicals)
Another day, another test of the 1175.00 area. It’s obviously relevant support. But if it were productive support, then Tuesday’s recovery attempt should have gained traction. Returning to 1175.00 after the close only serves to chip away at its support.

At least Tuesday’s last-minute plunge released a lot of pent-up selling pressure. It would have been more powerful if left to simmer overnight. Some follow-through is still likely, but selling pressure could be satisfied much more easily upon probing recent lows.

Immediately rallying at Wednesday’s open would not be credible. Buyers didn’t gain traction Tuesday, so they’re unlikely to clear the first obstacle, like prior highs around 1188.00. Of course, gapping up above prior highs would get a benefit of the doubt for being able to extend higher.

What’s Next… (Outlook and opportunities)
Since timing the corrective rally’s end last week between Wednesday’s close and Friday’s open, every bounce has failed at resistance. Tests of support have held, but they haven’t reversed the trend up, so sellers don’t seem to be done.

A capitulation sell-off that recovers from testing 1171.00 would seal a bottom to this downleg triggered three weeks ago at 1215.00. Probing 1171.00 without recovering would signal a new and more powerful downleg has begun. [/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.

Close, but no cigar… That was quite a surge Monday afternoon. And it might yet gain traction for a multi-day rally. But it stopped just short of assuring any follow-through. And stopping just short leaves the pattern vulnerable to resuming the decline at Tuesday’s open.[pay]

Pattern points… (Setups and technicals)
Monday’s afternoon’s rally from 1178.00 started several minutes before the afternoon’s bias environment started lapsing at 2:30. And it surged. It was sponsored by impatient buyers. A rally that started slowly would have been durable, or a surge that started later. But not an impatient surge.

In fact, the surge’s only hesitation was a Running Correction. It resolved up appropriately into the rally’s final segment. And the final segment’s retracement stopped 1 tick short of touching the Running Correction’s high instead of probing it – more excessive optimism, how appropriate.

The rally’s excessive optimism could have redeemed itself by peaking earlier. But that wasn’t going to happen with a premature surge. So the rally’s test of 1188.00 held as resistance to rob buyers of their traction, or instead of avoiding a test so it could attract price higher Tuesday.

And the rally could have prolonged itself by retracing some of the breakout leg. But none of it was retraced back to the Triangle where it originated. And that is required whether or not the breakout resumes.

What’s Next… (Outlook and opportunities)
Rallies that don’t gain traction by the close can extend higher only by gapping up. Gapping up Tuesday above 1193.00 would make the rally credible for extending higher another day. Assuming it lasted the day, it could eventually probe new highs above 1225.00.

But a break back under 1182.00 or 1178.00 through any relevant timing window would resume the decline from Thursday’s high. Oversold RSIs at Monday’s 1172.25 high require a retest eventually, presumably including a visit to 1171.00, and now also to 1166.50 to compensate for the delay.[/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.