Market Wrap

Did Friday’s drop tell us the market’s next direction? The timing was right for an inflection point, and they don’t inflect much more obviously than that. Just need to justify the close’s excess pessimism… [pay]

Pattern points… (Setups and technicals)
The nearby chart doesn’t include Thanksgiving’s last-minute Globex surge to 1200.00. The sell-off to 1182.50 before Friday’s open is nonetheless impressive. So is the post-open bounce which retraced 61.8% of the drop.

Friday’s session formed a Symmetrical Triangle. The cash session close equated to 1188.00, which coincided with the Triangle’s uptrending support. Futures continued dropping to the pattern’s 61.8% target at 1183.00 (red boxes).

Post-close trending is often excessive pessimism (or optimism). Excessive pessimism that meets a target can form a significant bottom. Usually, that’s when there’s a reaction before the close, but there wasn’t any time for that Friday – in fact, the break didn’t even happen until after the close.

When there’s no reaction before the close, one target’s test usually gaps to the next. And the Triangle’s 161.8% target is 1177.00. Its break would extend to the Triangle’s 261.8% target at 1171.00. That’s where things get interesting, as the following chart shows. Either the two-week old trend change will have ended, or a steeper leg will begin.

Alternatively, Friday’s post-close drop will reject its test of 1183.00, gapping up to and/or through its 1188.00 origin. Recovering 1191.00 would target yet another test of 1199.00, this time to trigger a Complex Ascending Triangle targeting new highs. This alternative should be obvious well before Monday’s open if it is valid at all.

What’s Next… (Outlook and opportunities)
Oversold RSIs at Friday’s post-close low are similar to closing at a target – the vulnerability to a bounce only exaggerates the selling that created the conditions. Two big developments should be known before Sunday night (whether U.S. / S. Korea war exercises spark a reaction, and whether Ireland settles on bailout terms). Favorable news must trigger more than a momentary relief rally that recovers 1188.00-1191.00 to avoid extending down to 1171.00.[/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.

That was quite the send-off into the Thanksgiving holiday. The open’s gap up extended higher to retest prior highs. Either the rubber band has been stretched back again to launch another drop, or else a bigger bounce is underway.[pay]

Pattern points… (Setups and technicals)
Wednesday afternoon’s meandering was entirely appropriate its volume evaporating quickly. The morning’s 1195.50 high was probed above and below, but essentially defined the range’s midpoint. Bars overlapped it into the final minutes.

There is no unfinished business above, so extending the rally would suggest new sponsorship had arrived. And new sponsorship would essentially put into play new highs around 1228.00. Resistance along the way would include 1208.50/1212.00 and 1217.00.

Otherwise, Wednesday’s session was counter-trend refueling. It was similar to all but one of the four prior sessions whose highs held as resistance. Buyers expended all of the day’s energy without gaining new traction for their effort. If the next 30 points’ direction should be obvious by Friday’s open, and if the next 30 points’ direction is not up, then the holiday is vulnerable to a Thanksgiving slide.

What’s Next… (Outlook and opportunities)
“Thankstaking”? That’s the risk on any sustained break under 1194.00. If the next 30 points is heading higher instead, then 1199.00 will need to break higher. Holiday probes of its resistance won’t matter if not maintained into the next cash session. Friday’s abbreviated hours might simply range narrowly, regardless of the template that suggests greater volatility. Regardless, I’ll certainly comment ahead of Thursday morning’s Globex close, and publish Friday’s bias parameters afterward. HAVE A VERY HAPPY AND SAFE THANKSGIVING![/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.

Artillery fire, or not, the bounce from last week’s lows wasn’t sustainable. Last Wednesday’s 1177.00 close had confirmed the trend change that was signaled one week prior at 1215.00. Since filling the gap back to Wednesday’s close Tuesday, the market hasn’t behaved as if it’s done dropping. [pay]

Pattern points… (Setups and technicals)
Tuesday’s open gapped under Monday afternoon’s last relative low. This triggered a session-long decline since Monday’s close had trended up, and the afternoon’s low had printed before the last hour. The signal helped to suspect any rally attempt Tuesday, and no rally attempt succeeded.

The signal often prints its session low in the last hour, but Tuesday morning’s low has yet to be retested. The delay suggests that revisiting Tuesday’s low would not be a retest to form a durable bottom, but a new downleg to trend down.

The next lower objective is 1166.50, and its test Wednesday might expend too much selling pressure to avoid a corrective bounce. Any probe under Tuesday’s 1174.75 low that recovers back above 1177.00 would also rob sellers of near-term traction. Recovering 1181.00 through any relevant timing window could marginalize sellers for the balance of the day.

What’s Next… (Outlook and opportunities)
Plenty of economic items are scheduled for release Wednesday, crammed into the calendar because of the holiday-shortened week. One wild card is pre-holiday volume, which will soon start slowing considerably. Korean hostilities is another wild card. Overnight action will be very revealing.[/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.

Did Monday’s session dodge another bullet? It looks more like it took a hit, and it’s trying to make another run for it anyway. But the intraday drop did damage the chart, whose patterns had already suggested rally efforts would fail.[pay]

Pattern points… (Setups and technicals)
It’s always interesting how the character of an expiration’s session is duplicated on the following Monday. For example, Friday’s gap down created a lot of room to absorb a 12-point rally without letting buyers gain traction for their efforts. Similarly, Monday’s drop into the noon hour’s low absorbed the afternoon’s 14-point rally back to the morning’s high.

Also similar to Friday, Monday’s buying pressure wasn’t entirely wasted. It did prevent sellers from gaining traction. The likely probe above Friday’s highs Sunday night was rejected before Monday’s open. A probe above Monday’s 1198.00 high (same thing, really) might last a little longer, and could probe Sunday night’s 1206.00 high.

The last similarity to Friday is that its 1198.00 high is still a valid candidate for launching a new downleg. Monday’s RSIs left no unfinished business above. Oversold RSIs at Monday’s 1182.50 low require its eventual retest. So does the gap back to Wednesday’s 1177.50 close, which had confirmed the trend is down. And the downtrend likely will have resumed if Tuesday’s open isn’t extending the corrective bounce.

What’s Next… (Outlook and opportunities)
Third time is rarely a charm in the market. So, Friday and Monday’s two morning drops aren’t likely to be followed by a third on Tuesday. Not unless a substantial drop is underway. Otherwise, a retest of Sunday night’s range is likely, targeting 1204.00.

Successfully negotiating 1204.00 – whether overnight or Tuesday morning – would next target 1208.50 and potentially 1212.00. A lot of econ reports are being squeezed into Tuesday and Wednesday ahead of Thanksgiving’s abbreviated hours. There is plenty of opportunity for reversing or accelerating any intraday trending. [/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.

Buyers rose to the occasion Friday. Too bad. Recovering all of the open’s gap down – and only the open’s gap down – didn’t leave any pent-up buying pressure to help extend the rally this week.[pay]

Pattern points… (Setups and technicals)
A lot of buying pressure was expended Friday without gaining any traction for the effort. The open’s gap down to 1194.25 had extended to 1187.50. This raised the threshold for buyers just to get back to even. They did, recovering to both Thursday’s 1195.00 cash session close and 1198.00 futures closes.

Buyers neutralized all of the gap down’s pent-up buying pressure. Had its recovery stopped short of filling the gap(s) back to either Thursday’s close, its attraction could have helped to resume the recovery Monday. At least a probe above Thursday’s high happened after the cash session close. Rejecting an intraday test would have robbed buyers of their traction.

This restrained optimism wasn’t quite pessimism. And while it did keep sellers from gaining traction, the burden of proof is on buyers. Tuesday’s close under another prior relative low had reinforced the prior week’s trend change signal. And Wednesday confirmed it. In this context, the bounce’s sponsorship showed up one day too late to be strong hands – so the bounce is only a correction refueling sellers.

Friday’s intraday recovery is similar. The morning’s drop remained under relevant levels through relevant timing windows. Its buyers were was weak hands, so their product was not accumulation. A bullish close would have been surprising.

What’s Next… (Outlook and opportunities)
Measurements allow Thursday’s ~1199.00 high to serve as the bounce’s peak, but that would require a break back under 1186.50. Whether gapping down, or on a closing basis, any reversal Monday would be credible. Otherwise, the next corrective target would be 1212.00.

Noise around 1212.00 is 1208.50-1217.00 – the could end at 1208.50, and closing above 1217.00 would mean the “bounce” was targeting new highs at 1228.00. Regardless of where the bounce were to end, in this pattern it should react down suddenly, sharply and substantially.

This week’s holiday is the least reliable for being seasonally bullish. Less liquidity often makes trending difficult, especially counter-trending. Regardless, the trend is down, so attempting to trend up is only stretching buyers thinly. If 1199.00 isn’t the bounce’s peak, then extending to the 1212.00 area could make Wednesday or Friday very negative.

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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.