Market Wrap

[pay]About that close (How the prior session ended)
Often, afternoon price action is paralyzed by anxiousness ahead of an Employment Situation report. Thursday afternoon had bounce off the noon hour’s 1147.25 low, peaking at 1155.00 just before the bias environment lapsed at 2:30. The cash session ranged sideways narrowly from there. A surge into the futures close on AA earnings touched 1157.25.

Pattern points (And technical influences)
The 1148.50 pullback target was met at Thursday’s lows. Closing above 1154.25-1154.50 could have refueled buyers to resume the rally. It was still being tested at the cash session close, so not clearly recovered. So, no signal that a new upleg is underway.

Anyway, the bounce trended up during a bias-down environment, which strong hands don’t tend to sponsor. The 1146.25 bias-down signal is unfinished business. Also, the 1147.25 low’s oversold RSIs require a retest. A negative knee-jerk reaction to Friday’s Employment Situation report could test these and rally into the open. That could be very bullish.

I would be inclined to sell an initial rally, preferably after retesting Thursday morning’s 1161.50 bias-up signal. Preferably after retesting Thursday’s 1163.75 pre-open high. But there is no requirement to rally at all.

Some move lower at some stage is likely since the recovery setup came so close before failing. A setup that fulfills all of its elements – except for the close – is often a contrary signal. Thursday’s recovery closed too low (or too early). Firming to 1157.25 would have been bullish at the cash session close, not after.

Bottom line (My underlying premise)
An initially positive reaction that sells off sharply was my likely scenario for Friday’s Employment Situation report. So it is interesting that Thursday already followed this path. The weekend’s impending illiquidity factors heavily into that template, and now it actually is impending. Thursday’s pattern either stole Friday’s thunder, or gave it a running start.[/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.

About that close (How the prior session ended)
A bounce back to the afternoon’s 1154.25 bias-down signal was barely attacking it as resistance at 2:30. Recovering 1155.50 would have confirmed, but that wasn’t touched until 10 minutes before the cash session close, while 1-minute RSI diverged negatively. It was probed after the cash session close, too late to gain traction

Pattern points (And technical influences)
1154.25 could have been recovered by 1:30 or through 2:30 to invalidate the afternoon’s bias-down signal. Bouncing into 2:30 could have qualified by recovering 1154.25 through 3:00. But neither recovered in a timely fashion. Wednesday afternoon’s 1148.50 bias-down target is now “unfinished business”.

1154.25 was recovered at the close, too late to invalidate the bias-down. Dropping overnight first back under 1153.00 would suggest a move is underway to 1148.50. But if sellers haven’t retaken control aggressively by Thursday’s open, then it’s probably because a detour bounce is already underway.

A detour bounce’s target would be Wednesday morning’s 1161.00 bias-up target, and above 1161.00 would target 1164.25–1165.00. An overnight test would suffice – which would be important if the open is already dropping after pre-open news surprises negatively.

Sponsorship for a new upleg isn’t likely without dipping deeper, first. Retesting the highs first would stretch buyers more thinly – perhaps a case of “buy the rumor, sell the news.” Thursday’s reactions will help to fine-tune expectations for Friday.

Bottom line (My underlying premise)
So much common anticipation for a single outcome is groupthink, and it accompanies a trend’s end. Not its beginning. Opinion is still divided among whether the market is fully, fairly or under valued. But there is little disagreement regarding the events to come: QE2, not-so-bad Employment Situation report, Congressional control. By the time one or two resolve, price has already discounted much or all. And the first of these tests comes Friday.

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.

[pay]CHARTROOM UPDATE: We’ll retry Webex Wednesday. As always, simply use the link on the chartroom page. Overnight I am retesting the original vendor to assess whether their audio has improved. Click here to view overnight action.

About that close (How the prior session ended)
Tuesday afternoon had been resisted by its 1155.75 bias-up signal. It was probed momentarily when the no-bias environment lapsed at 2:30. It was then recovered by new highs up to 1159.00. But the last half-hour slid to close back under 1155.75.

Meanwhile, Tuesday’s last 90 minutes also violated pullback limits. The session-long rally had not spent more than 2-3 minutes and/or 2-3 ticks under any limit previously. Suddenly two were probed deeply.

The late pullback limit tests reflects weak-handed sponsorship probing the afternoon’s high. Those same highs mean buyers were productive, but closing back under 1155.75 resistance means they gained no traction for their efforts.

Pattern points (And technical influences)
Since Tuesday’s high lacks integrity, retesting it from below would likely form a Double Top, targeting 1161.00. The late slide still held within the afternoon’s range. Lower lows are still needed for a retest of Tuesday’s highs from below.

A move to lower lows is in-play. Tuesday’s late reaction down from 1159.00 triggered a sell signal targeting 1153.50. That would barely probe the afternoon’s lows, but its test has room down to 1151.75-1152.00 overnight as noise around the target. Early Globex trading has so far reached 1154.25.

Regardless of the overnight dip’s depths (say that five times quickly), its recovery to test 1159.00 is likely. New price extremes that print during a session’s last hour don’t resolve in reversals. And Tuesday’s late surge began with a new high in the last hour.

Bottom line (My underlying premise)
One caveat to a deeper overnight dip: Wednesday’s open should recover 1153.50 to confirm sellers were absorbed. And extending under 1151.75 would start to gain traction for trapping Tuesday afternoon’s buyers, and rejecting their higher 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.

[pay]About that close (How the prior session ended)
The bounce potential to 1135.00 was met by a 4-1/2 point rally into and out of the cash session close. The cash session closing equivalent was much lower at 1132.75, which was not a fresh high for the afternoon. In fact, the afternoon had repeatedly probed the lower bounce potential at 1131.25.

Pattern points (And technical influences)
Monday’s 1133.25 overnight low had put into play a test of 1131.25 because of their relationship last Thursday, pivotal low and actual low, respectively. Closing back above both would have robbed sellers of their traction.

Futures did close back above both, but the cash session close was still in the process. Not rejecting this last-minute bounce at Tuesday’s open or before can extend to 1138.00-1139.00.

But the ultimate resolution is still down. And an overnight bounce to 1138.00-1139.00 can be rejected before Tuesday’s open. No bounce is required, and back under 1130.00 would signal another downleg underway. Its initial objective is to retest Monday’s 1127.00 low, whose 1-minute and 3-minute RSIs were oversold.

Bottom line (My underlying premise)
If Monday’s drop did turn the corner, then this distribution pattern forming since last Sunday can unfold very quickly. Its initial objective is 1105.00. Tuesday will be a critical test – not of any particular level, so much as a test of buyers’ resolve. Sponsorship tends to fight hard when its trend is jeopardized, and closing under Monday’s lows Tuesday would all but initiate a significant downleg. [/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.

[pay]About that close (How the prior session ended)
Despite higher highs and higher lows throughout, Friday afternoon really only ranged around the noon hour’s 1141.25 high. Its eventual touch of 1144.00 reacted down to 1140.00. Buying pressure that gains no traction is “ineffectual optimism.”

Pattern points (And technical influences)
Volatility comes in pairs. Either two or more timing windows contain a wild swing or sharp trending, or else all timing windows range quietly. Fridays can delay round-two by sucking volume out of the market. Not yet having matched Friday morning’s swing, Monday’s open is unusually vulnerable to a wild swing or sharp trending.

It would be interesting if Monday’s volatility were similar to Friday’s, which was similar to Thursday’s. Note in the following chart how early rallies (circled red) have been more aggressive, so therefore more easily absorbed. Yet each of the past three sessions have attacked 1136.00 (highlighted green) during inappropriate timing windows, when sellers were unlikely to gain traction.

Since Friday repeated the ongoing pattern of not closing under a prior low, the trend has not yet signaled it is reversing down. So, Monday is vulnerable to another early rally, which would neutralize the overbought RSIs at Friday’s 1146.50 opening tick. Immediately rejecting its test would find little support from Friday afternoon’s ineffectual optimism (highlighted red).

Perhaps Friday afternoon’s ineffectual pessimism is Monday’s early rally, or an actual rally Sunday night will fail before Monday’s open. Gapping down under 1138.00 would reject all of Friday afternoon’s improvement.

Bottom line (My underlying premise)
Monday’s don’t often trigger a “session-long decline” (or rally) setup, and anyway Friday’s closing action itself didn’t actually trend up. But some aggressive follow-through to the downside would still be likely. Monday’s also don’t often start a durable breakout, but that doesn’t stop them from trying.[/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.