Market Wrap

[pay]About that close (How the prior session ended)
Wednesday afternoon’s last stabs at recovering 1108.50 were either too early or stopped short. A dive into the session’s last hour reached 1099.25. RSIs diverged positively to launch a bounce. But not until after the 3:10-3:20 window indicated that sellers had gained traction.

Pattern points (And technical influences)
The late bounce peaked upon testing the morning’s 1103.50 “higher prior low” as resistance. Closing under the morning’s low on a negative session means sellers gained traction.

The 3:10-3:20 window did not recover a prior high. Nor did it recover from probing a fresh low. It remained under the most recent prior low. This doesn’t signal the next immediate direction, but it does confirm the current direction will prevail. In case of a bounce, its purpose would be to refuel sellers. In any event, Wednesday’s 1099.25 lows should be probed.

A shallow probe under Wednesday’s 1099.25 lows could bottom at 1097.00-1098.00. The alternative would target 1089.00-1090.00. Recovering 1107.00 (whether or not by gapping up above it) would insert a detour targeting a retest of Tuesday’s highs around 1118.00. But its purpose would still be to refuel sellers.

Bottom line (My underlying premise)
Thursday’s relatively quiet news day begins with a high-profile econ report. Its worst-case could only confirm other reports that have dribbled out this week. A miss would have to be so wide that it might be considered an outlier. A near-term trading low at Thursday’s open is possible. No trading low at Thursday’s bottom would suggest that market participants were coming to realize that the 1108.50-1118.00 area was a significant top. [/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)
Tuesday’s close made it official. By ending the day ranging narrowly under Monday’s high, Tuesday morning’s buying effort gained no traction. Tuesday’s 3:10-3:20 timing window ignored an opportunity to probe fresh afternoon highs, whose recovery would have breathed new life into the rally. At least sellers never gained traction intraday.

Pattern points (And technical influences)
Closing under the prior day’s high in an uptrend is a warning. Closing under the prior day’s high despite testing a target is a sign. And Tuesday’s 1118.00 target wasn’t a conventional target. It was met by gapping up at the open, without the prior session putting it into play.

Like the two-week old prior high at the 1093.00 target, buyers are gaining ground, but not traction. It is an accident waiting to happen. Sellers have yet to gain traction themselves, which keeps alive the potential for intraday strength.

In fact, sellers had all of Tuesday’s noon hour and afternoon to gain traction, but only ranged sideways to form an Ascending Triangle. The pattern could break down without delay, but probably would have already if that were the market’s intent. Meanwhile, Tuesday’s 1116.50 opening gap wants to be tested, as does the 1118.75 pre-open high.

Gapping down under 1103.75 would break free from any remaining attraction back to Tuesday’s highs, at least in the near-term. But a morning test of Tuesday’s high that reverses down into the afternoon would seal a very substantial top.

Bottom line (My underlying premise)
More sideways ranging centered around 1108.50-1118.00 without extending higher would only increase the distribution. But this pattern doesn’t need much distribution before ending this retest of the two-week old high. Unfinished business above, or not, I would be suspicious of any recovery attempt if a relevant timing window contains a break to fresh lows.[/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)
Buyers had gotten a benefit of any doubt throughout Monday’s session. Despite ranging narrowly around 1108.50 for three hours, a dip could touch 1104.25 without sellers gaining traction. In fact, a dip touched 1104.50 as the afternoon’s bias environment was lapsing. RSIs diverged positively, and the last hour rallied up to 1111.75.

Pattern points (And technical influences)
Monday’s last-hour recovery was still stuck at 1108.50 until the cash session’s last 15 minutes. That’s too late to credit the higher high with gaining traction. In fact, futures dipped back to 1108.50 into the Globex open.

There is no unfinished business above, but Tuesday’s session can still probe fresh highs intraday. Overnight or initial weakness has room to test 1104.25 and still recover to test Monday afternoon’s 1111.75 high – perhaps even the rally’s next potential objective at 1118.00.

But having trended up into the close, from an afternoon low that printed before the last hour, gapping down under 1111.75 1104.50 would signal a session long decline. It would also leave outstanding a gap back to Monday’s close, inhibiting a durable downleg from beginning for the unfinished business it would leave outstanding above.

Bottom line (My underlying premise)
Like the rally’s 1093.00 target tested two weeks ago, holding its test through the close reflects the rally’s weakening sponsorship. Like Thursday’s opening surge that then ranged sideways through the day, the rally is overly optimistic. Sellers are being patient, and the reward for that patience should be another steep, deep 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)
Thursday’s close above 1085.00 officially signaled a 10-15 point probe above 1100.00 underway, but I noted that it was done very grudgingly. Closing above 1093.00 officially confirmed, but it wasn’t done any more certainly.

Friday afternoon’s 1095.50 bias-up signal wasn’t tripped in time to formally trigger. It still deserved a benefit of the doubt for behaving as if it did, despite being required to fail. So its 1100.75 target was tested, and the last half-hour eventually dipped to 1093.50. But the dip came too late to be credible, so it was recovered to fresh highs at 1101.50.

Actually, the cash session recovered to only 1099.00. That was essentially a 61.8% retracement back into the late-afternoon’s consolidation. A 61.8% retracement is natural resistance, and the extended futures close doesn’t require a retest. A more serious downleg is free to begin immediately, or else 1108.50 and 1118.00 is now in-play.

Pattern points (And technical influences)
Here’s a “big picture” chart depicting the S&P Cash index. It’s not futures, whose premium for time and volatility can fluctuate. The year’s warning shot across the bow formed an inverted “Pivotal Correction,” sort of a head & shoulders pattern. April’s high ultimately fulfilled the pattern’s 261.8% extension, its maximum calculable target.

The reaction was immediate, which is not unusual. The reaction was dramatic, which is not usual. Regardless, the reaction normally continues through the Pivotal Correction. And upon closing under it, the trend has officially reversed. The reaction did close under the Pivotal Correction, for several consecutive sessions (circled red on the chart). S&P futures probed lower while the cash market was closed during Independence Day.

The trend has reversed down. Nevertheless, price action has bounced. How? First, having secured the trend change, the pattern became free to refuel selling pressure with a bounce. Conveniently, and second, a lot of selling pressure was being satisfied while the trend change was being secured: a big target area was probed at the cash session low, and its lower-end was retested during the holiday trading.

Now the template requires that trending below the Pivotal Correction should measure greater than its recovery leg. If the recovery measured 175 points above Feb 5’s low at SPX 1045.50, then the drop should eventually exceed 175 points below SPX 1045.50. This current bounce seems like its refueling for the entire journey ahead. Actually, the Pivotal Correction’s high (highlighted pink) hasn’t even been probed since the trend changed.

It would be convenient for this bounce to end here. Limiting any fresh highs only to intraday would be helpful, too. Otherwise, closing above the pattern’s upper-end would threaten to give buyers traction. Regardless, there’s room up to SPX 1112.00 and 1121.50 (currently 1108.50 and 1118.00 basis ES). Closing any higher would not negate the trend change, but it would at least extend this year’s ranging.

Bottom line (My underlying premise)
I analyze S&Ps for trending and targets because I’ve found it to be the most predictive index. Other indexes track its direction and timing, but not necessarily its degree. Case in point: NDX (shown in the nearby chart). It has yet to close under its Feb low – the Dow did, before S&Ps. This suggests that speculative optimism was never flushed out. Even if Friday/Monday doesn’t contain the current bounce’s peak, it is still only a corrective bounce. [/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)
My two favorite parts about Thursday’s session happened at the close. Just closing the chapter on its sloppy pattern was enjoyable enough. But it was preceded by an 8-1/2 point drop that finally brought the pattern back on-track. Its pent-up buying pressure, repeatedly missing opportunities to rally, had to resolve down sharply instead. And it did.

Pattern points (And technical influences)
Thursday’s upper-end chipped away thoroughly at 1093.00 resistance. This was the bear market rally target that held as resistance last week for three consecutive days. Testing it again intraday expended a lot of buying pressure. Failing again to break higher has absorbed a lot of buying pressure.

Closing above 1085.00 would have retraced last week’s decline so much as to target higher highs  above 1100.00. Thursday’s close barely held above 1085.00, so the signal did trigger. Now there’s the matter of confirmation, which Thursday’s ending drop suggests won’t be easy.

Gapping up Friday above Thursday’s 1094.50 high could reinstate the recovery attempt. Recovering from initial weakness down to 1078.00-1079.00 could reinstate the recovery, too, but would still need to close above 1085.00.

But look out below if 1085.00 fails to hold through Friday’s open. Wednesday’s 3:10-3:20 window already signaled that the purpose of rallying Thursday would be to refuel sellers. Filling the newly created gap back down to Wednesday’s 1064.00 close might act as support, but probably not as a bottom

Bottom line (My underlying premise)
Thursday’s positive close was under its morning high on a session spent exclusively in positive territory. The typical template for extending this rally is to gap up above that session’s highs. Any lesser opening strength would be vulnerable to extending down into the weekend. Regardless of which way Friday were to trend (assuming it trends at all), that trending should persist through Monday’s open.[/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.