Market Wrap

Tuesday’s trend change has been both productive… and also not productive. It has stopped the rally and probed lower lows. But it hasn’t yet produced a downleg. Is this the best it can do, or are sellers about to make up for lost time?[pay]

Pattern points… (Setups and technicals)
After testing overnight highs around 1212.75, the door was open to a big drop. Standing in its way was the support of Thursday morning’s highs at 1208.00-1209.00. Its test was the product of a sudden reaction to Disney (DIS) news, and it didn’t gain traction.

There is usually a reason why holding one test of resistance doesn’t resume a decline. It is because the market intends to test a higher resistance, first. The next higher resistance is Wednesday’s 1217.00 high whose overbought RSIs require a retest.

Recovering 1211.75 would have signaled the test underway. But a bounce into the cash session close peaked there. A 2-point drop into the futures close was just retraced to 1211.75, but still no signal.

Thursday’s session traded entirely within Wednesday’s range, making it an “inside day.” Trending up throughout an inside day does not form a solid base for launching a rally leg. Thursday’s gap down already gained traction that undermines any rally prior to probing new lows. Whether from testing 1212.75, 1217.00, or new highs, the bounce is just looking for a high where it can resume the trend change.

Tuesday’s trend change signaled under 1215.00 has now lasted two days without recovering. If the decline does resume, then it should be steep and deep to compensate for the delay. Oversold RSIs at Wednesday’s 1201.75 low were barely attacked Thursday, suggesting the eventual retest will be a downleg with potential to 1193.00 and 1180.00-1182.00.

What’s Next… (Outlook and opportunities)
Aggressively probing 1211.75 overnight – i.e. not just inching through it – would target 1217.00. Extending through it, and then testing 1216.00-1217.00 as support into the open could rally to new highs into the weekend.

1217.00 overnight test can be rejected by opening Friday back under 1213.00. Regardless of whether higher highs were probed overnight, any dip maintained under 1206.00 would resume the decline.

[/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 tried to dodge the bullet of Tuesday’s trend change… But it was still grazed. That’s not enough to invalidate the signal, so the decline is now free to resume. With a vengeance, to compensate for the delay. [pay]

Pattern points… (Setups and technicals)
Tuesday’s break under the 1215.00 prior low had signaled a trend change. Its confirmation required only that 1215.00 not be recovered through Wednesday’s close. Wednesday’s close – in fact, Wednesday’s last two hours – ranged narrowly around 1215.00.

That wasn’t enough to invalidate the signal. Therefore, it qualifies as confirming the trend has reversed down. The requirement to retest overbought RSIs at the afternoon’s 1217.00 high might delay the decline’s resumption. Its attraction would be negated by gapping down under the afternoon’s 1205.75 bias-down signal.

That’s interesting, because reaction to CSCO’s earnings drove S&Ps down to 1206.00 after the close. Oversold RSIs at Wednesday’s 1201.75 low require a retest. The detour and delay – sizable, through multiple timing windows – suggests it will be retested by a new downleg (NQ’s heavy exposure to CSCO already fell under Wednesday’s low.)

All of which assumes the market is ready to trend. Tuesday afternoon’s bias environment was entered with a bounce to 1214.50. It was still being tested at every major checkpoint – 2:30, 3:00, 3:30, and the close. It’s similar to Monday’s repeated attraction to 1218.75, which sabotaged Tuesday morning’s rally attempt.

What’s Next… (Outlook and opportunities)
Retesting Wednesday’s low down to 1199.00 could still hold as support. A recovery to new highs would be possible. Otherwise, breaking lower would next target 1193.00 and then 1180.00-1182.00.

Tuesday’s trend change could still be invalidated, by gapping up above 1220.75. That seemed much more attainable at Wednesday’s 1216.00 close, and less so 10 points lower. But now just opening above Wednesday afternoon’s 1212.75 bias-up signal could marginalize sellers for 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.

SummarizeDayAndPositions [pay]

Pattern points… (Setups and technicals)
When Tuesday morning’s new high (circled green) probed Friday’s prior high, Monday’s 1214.75 low (circled red) became the last relative low. Closing under it Tuesday signaled the trend was reversing down.

The narrow ranging since Friday doesn’t change the break’s relevance – but it does make the signal easier to invalidate. Trend changes aren’t confirmed like breakouts, which require extending the following day. A valid trend change must only avoid reversing the following day.

So, closing under 1214.75 would confirm the trend has changed direction, even if that close were positive. A bounce has room up to 1218.75-1220.25 before buyers could begin gaining traction.

Tuesday’s last-minute bounce did not recover above a prior low, making a recovery Wednesday unlikely without first probing fresh lows. In fact, Tuesday’s 1206.25 last-minute low was accompanied by oversold RSIs, which requires its eventual retest.

What’s Next… (Outlook and opportunities)
Failing to hold a retest of Tuesday’s low would put into play a test of “lower prior highs” at 1193.00. Gapping down to the 1193.00 area could make the past four sessions into an Island. It’s a rare setup, but it would extend down sharply without delay, next targeting 1180.00-1182.00. No further bounce is needed before extending down, but a test of 1215.00-1217.00 should fail quickly to avoid gaining traction. [/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.

1218.75-1220.25 was the target triggered by Wednesday’s last-minute breakout. It got quite the workout Friday, and now also Monday. Friday’s testing wasn’t bullish, but Monday’s sellers couldn’t exploit it. Unless Tuesday’s open tries gapping down again, at least a probe of higher highs is likely.[pay]

Pattern points… (Setups and technicals)
Monday’s open gapped down, probed prior lows, and spent the entire session in negative territory. That’s pessimism. Prior lows held as support, making it “ineffectual pessimism.”

The session’s pent-up selling pressure was never triggered. Leaving it overnight turns it into buying pressure. That pressure should be evident at the open. Resistance at Friday’s 1224.50 high would be only obligatory, and temporary, unless its overnight test were being rejected at Tuesday’s open. Breaking higher would target 1228.25 and potentially the 1240.00 area.

Monday’s ineffectual pessimism does leave the door open to its opening sell-off attempt getting a second chance. But 1118.75 must be broken decisively. Its magnetic attraction has already been thoroughly vetted – orange dots on the nearby chart identify 1118.75‘s tests at almost every relevant timing window Monday. A valid second chance must gap down or immediately break under Monday’s ~1215.00 lows to gain traction.

What’s Next… (Outlook and opportunities)
Gapping down just a little Tuesday won’t be gapping down enough for sellers to retry Monday’s opening attempt. And gapping down just a little would suggest more narrow ranging throughout the morning.

An overnight break above 1221.50 would be likely to retest Friday’s 1224.50 high overnight. Its test could be rejected by Tuesday’s open Breaking under 1217.25 first would trigger a morning dip. Its purpose would be to refuel buyers for a break above 1224.50. [/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.

1218.75-1220.25 was the target triggered by Wednesday’s last-minute breakout. And got quite the workout Thursday’s and Friday. Was it absorbing the rally’s momentum, or conserving it to resume Monday? [pay]

Pattern points… (Setups and technicals)
Targets reflect where buying (or selling) pressure is satisfied. Exceeding the target means new sponsorship has arrived to extend the target. Failing in attempts to exceed the target means no new sponsorship arrived.

The 1218.75-1220.25 target’s lower-end was Thursday’s last-minute high. It was essentially Friday’s opening print. And this was after being probed up to 1222.25 by the Employment Situation report’s reaction. Either 1218.75 or 1220.25 was being tested at every relevant timing window Friday. And it was tested repeatedly as support intraday.

And its support was still being tested until the last 15 minutes. A break lower would have been very productive, but sellers lacked sponsorship. Weak sponsorship is exploited at the next open when pent-up selling pressure is not triggered by the close. But Friday’s session couldn’t wait, and a short-squeeze already neutralized the opportunity.

The squeeze stopped short of gaining traction. Closing under the morning’s high is indistinguishable from noise. Its peak touched the 61.8% measurement of the afternoon’s swing, which a breakout would have exceeded. RSIs barely became overbought, only to diverge negatively before the close.

What’s Next… (Outlook and opportunities)
Despite all that Friday’s buyers lacked, sellers never gained traction. The rally can extend into this week. But it requires avoiding an early dip, even a dip from fresh highs.

Friday’s last-minute action trended up, and the afternoon’s low printed before the last hour. So, gapping down under Friday’s 1217.50 lows would trigger a “session-long decline” setup. Reacting down from a fresh high (i.e. 1228.25) after the open could also gain traction to trend down. Either setup could last through Wednesday morning.

Avoiding or absorbing early weakness might not extend higher immediately, but it would make higher targets likely. Above 1228.25 would next target 1233.00 and then a 2-point range around 1240.50.[/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.