Market Wrap

Methinks thou doth not protest enough… Buyers had two opportunities Thursday to lift this market out of its recent range. The open’s gap up didn’t extend immediately, and the afternoon’s trapped shorts weren’t squeezed. If they can’t get it together during the week, then it would be surprising to suddenly find sponsorship right before the weekend.[pay]

Pattern points… (Setups and technicals)
Thursday afternoon’s drop originated after the timing window had already signaled no-bias. The drop’s sponsorship was therefore weak hands, predictably unable to maintain their effort. Their effort was retraced entirely, neutralizing the attraction above.

Trapped weak hands could have been squeezed to trigger a recovery back above the drop’s origin. They weren’t. So, the afternoon’s bounce only prevented sellers from gaining traction, but did not exploit the trapped shorts for buyers to gain traction.

Failing to complete a setup tends to be a contrary signal. This is similar to the morning’s failed gap up setup, which did not immediately extend higher to complete a bullish pattern. The setup became bearish for having expended the buying energy ineffectually. The inverse happened at Tuesday’s low, which threatened a trend reversal by probing the prior relative low. It recovered through the close, and that recovery eventually produced a new high.

Sellers did not gain traction either, similar to Wednesday afternoon’s sell-off. Sellers may need another early failed rally to kick-start a downleg. Thursday’s rally needed to fail from new highs above 1182.00, but the next one can reverse down sharply from probing only 1180.00.

This being a Friday, breakouts are unlikely. A new high intraday would be likely to fail before teh close. A new high close would be likely to fail Monday after trying to extend a little higher first. But no new high is required, not even intraday.

Thanks to Thursday’s new intraday high, Tuesday’s 1155.50 low is the new “prior relative low.” This replaces last Thursday’s 1162.50 low. Now there is 7 extra points of selling pressure to expend before signaling the trend has reversed down.

What’s Next… (Outlook and opportunities)
Thursday’s close was somewhat at equilibrium, having fulfilled its unfinished business (retracing the no-bias trending) without creating any new objectives. So, trending will be difficult to restart, but trending attempts will be hard to stop.

I tend to give sellers a benefit of the doubt since buyers failed twice Thursday to exploit different opportunities. That said, just how productive sellers can be is another question. This being a Friday, the morning’s bias signal is likely to persist through the noon hour. Trending early – or not – could define the day.[/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.

Tuesday afternoon’s bottoming didn’t gain much traction before its close. But Wednesday’s open extended much higher. The only question is, why? The morning’s rally didn’t improve that afternoon, nor has it been rejected. There’s a delayed reaction coming, and those tend to be aggressive.[pay]

Pattern points… (Setups and technicals)
Wednesday morning’s rally came early, its slope was steep steep and its gains were substantial. That’s a lot of optimism, especially considering that its peak during the noon hour wasn’t followed by a downleg before the close.

The selling into Wednesday’s close does not qualify as a downleg. The new session high at 1180.00 was the minimum target of a small pattern that formed after the Beige Book reaction. No distribution pattern formed after reaching the target. In fact, 1180.00 barely probed the noon hour’s 1179.25 high before reversing down. The selling did “trend” down in a series of lower lows  and lower highs, but only to probe the range’s lower-end.

There was an element of pessimism to Wednesday afternoon’s range. Its upper-end peaked just 1 point below filling the gap back to Monday’s 1181.00 cash session close. The gap was created when Tuesday opened under Monday’s intraday low, so it doesn’t require being filled. But it’s always suspicious when price travels so far and comes so close to an attraction without retesting it, especially after spending so long hovering just below it.

What’s Next… (Outlook and opportunities)
Wednesday ended by probing fresh afternoon lows down to 1173.25. Bars were still overlapping the afternoon range’s 1175.00 lower-end. So, (deep breath,) late sellers – reacting down from only a test of the range’s upper-end – were able to probe the range’s lower-end, without breaking lower.

This is despite a steep morning rally, and after hovering just under an open gap without bothering to fill it, (another breath,) which might reflect pessimism that can be bullish from a contrarian perspective.

Sponsorship for a downleg must do better than that to gain traction. It can. Perhaps after probing new highs above 1182.25, or just by sliding back under 1168.00 through a relevant timing window. Thursday morning’s econ calendar could wreak that kind of havoc on the early going.

Otherwise, absent a significant early drop, Thursday morning is likelier to probe the highs. And gapping up above 1179.50-1180.00 could lead to a session-long rally. [/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.

Earnings, earnings, China, earni… Wait, what? As if fallout from IBM and APPL’s excessive optimism wasn’t enough, China slipped in a “surprise” interest rate hike. Could the sell-off have been bullish for clearing out sellers? It better be, because it’s a long way down – and soon – if not.[pay]

Pattern points… (Setups and technicals)
With Monday’s new high, Thursday’s 1162.50 low became the last relative low. As such, it became the new trend change signal. Closing under it would signal the trend has reversed down. Tuesday’s 1155.50 low probed it, but the cash session’s close equated to 1162.50.

A setup that forms all of its elements except for the close can be a contrary signal. In other words, holding 1162.50‘s test Tuesday afternoon could be bullish. Holding its test Tuesday morning would have been overtly bullish. At the very least, an immediate break under 1157.50 is needed to resume the decline without delay.

Three points of interest about Tuesday afternoon’s price action. First (1) is its 1168.25 bias-down signal that wasn’t touched until after 1:20, signaling no-bias. So the subsequent drop was “no-bias trending” that requires a retracement back to the signal (red line) or to the 1:20 print up to 1170.00 (black arrow).

Second (2) is the slide’s persistently oversold 3-minute RSI (highlighted red) . Not until it left oversold territory, however briefly (circled red), could another low hold. The lower low’s 1-minute RSI diverged positively (circled green) while both RSIs made higher lows. The setup normally produces a reversal. Regardless, it is a tough level to break without a refueling bounce first.

Third (3) is the 3:10-3:20 window (highlighted green) that contained both a probe of two prior lows and the probe’s recovery. This setup could have been overtly bullish had its exit also ended back above its entry, instead of equal. A subsequent low did perform appropriately for the signal, by recovering back above it.

What’s Next… (Outlook and opportunities)
The last relative low before 1162.50 was 1151.75. Its test is not required. But it would be in-play if 1157.00 were broken through any relevant timing window. Breaking lower at Wednesday’s open would be likelier to hold 1151.75‘s test. Sellers might be reluctant ahead of the afternoon’s Beige Book release.

There is also a bounce to 1168.25-1170.00 somewhere in the future. Neutralizing its attraction early on Wednesday would leave an afternoon sell-off free to extend. Of course, bouncing first would be vulnerable to gaining traction back above 1171.00 – a big step in producing a new upleg targeting 1185.00.[/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.

Live by Apple, die by Apple… There was no unfinished business above left outstanding at Monday’s close. Optimism ahead of AAPL’s earning proved excessive. We already knew that, but the market seemed surprised by reacting down sharply after the close. Between that and the IBM earnings reaction that preceded it, S&Ps shed 11 points (squared red on chart below). That might be bullish, if Tuesday’s open handles it correctly…

Pattern points… (Setups and technicals)
Monday’s last upleg was the product of an extended narrowing range. It was signaled in the chartroom by exiting the afternoon’s no-bias environment probing fresh afternoon highs above 1176.75 (the actionable signal was the afternoon’s 1177.50 bias-up signal). Probing fresh afternoon lows would have been equally likely to extend in that direction.

Regardless, its first break should be reversed more substantially in the opposite direction. Its first break was higher, so a drop under Monday afternoon’s 1175.25 low would indicate momentum was reversing down. The 5-1/2 break higher peaked upon testing 1182.00, so it would be offset by a 1.618% move under 1175.25-1176.75 down to 1167.50 or 1164.25.

Those are targets, where selling pressure can be satisfied. There happens also to be an outstanding objective at Thursday 1162.50 low, and at and Friday’s 1163.00 oversold RSIs (circled red).

The bigger picture formed a potential Complex Triangle back to Wednesday’s high. It would be more complete, and able to trigger a more substantial downleg, by recovering Monday’s overnight dip to probe one more new high.

By the way, Monday’s new high created a new prior relative low at Thursday 1162.50 low. Closing under it would signal the trend reversing down. It’s much easier to trigger than 1152.00, and leaves less room for buyers to refuel with a dip.

What’s Next… (Outlook and opportunities)
AAPL’s pessimistic reaction might be bullish. Had the reaction been up, then a much more substantial offset to Monday afternoon’s false break would be needed. This requires only a shallower dip.

Also, it’s not easy for a gap down to extend through a prior low unless the prior low were broken early. So, neutralizing unfinished business at Thu/Fri ~1162.50 lows could hold. Holding their test through the bias timing window could react eventually back up and fill the gap back to Monday’s 1181.00 cash session close (circled green).

Notice how the bullish scenario relies upon holding a test of the ~1162.50 unfinished business below. And that requires actually testing it, probing it, and recovering through a relevant timing window. Inappropriate optimism upon re-re-retesting ~1162.50 would be short-lived, and could end the morning much lower.

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 daily Trading Plan takes a slightly new format beginning this week that incorporates many comments received. It should prove to be a faster read for us to get on the same page regarding where the market is, where it may be going, and how to try positioning for it.

[pay]Thursday’s rejection of Wednesday’s trending attempt limited Friday’s expiration to a trading range. But that ranging contained multiple instances of excessive optimism. And it left multiple instances of unfinished business below. First things, first, as expiration still has influence on Monday morning’s price action…

Pattern Points… (Setups and technicals)
Excessive optimism may look like it first appeared at the open, which gapped up 5 points to 1178.25. But that was relative to Thursday’s 1173.25 futures close. Thursday’s cash session close equated to 1370.50. This exercise was repeated after Friday’s close, which tacked on 2 points to 1175.00.

Interim evidence of excessive optimism came at the morning’s low. A reaction down from almost 1180.00 during just one hour earlier ended suddenly at 1163.00. Impatient buyers couldn’t wait another 2 ticks to touch Thursday’s late-afternoon low, let alone probe it.

RSIs were oversold at the low, both 1-minute and 3-minute simultaneously. This means the drop’s sponsorship was strong hands, leaving only weak hands available to sponsor the bounce. That dooms the bounce to failure, and requires a retest of the session’s 1163.00 low.

Thursday and Friday’s lows have been chipping away at the natural support of Monday’s ~1164.00 “lower prior high.” The first test is neither required nor predictive. But a retest typically means a deeper probe is coming.

What’s Next… (Outlook and opportunities)
The character of expiration’s price action is often duplicated Monday morning. Excessive optimism would be defined as breaking above 1178.00, with potential to 1185.00.

Whether reacting down from any initial surge, or simply opening weaker, maintaining a break under 1170.00 would target 1164.00. But its support would be obligatory, again, and its eventual break would likely test Tuesday morning’s 1151.75 last relative low.

Closing below there would be the first signal that trend is reversing down. Until then, the trend remains up, so intraday dips remain vulnerable to recovery.

[/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.