Market Wrap

[pay]About that close (How the prior session ended)
Monday’s last hour quickly slid to fresh afternoon lows. The 3:10-3:20 window trend up, but failed to recover back above prior lows at 1081.00. Fresh afternoon lows were likely so long as 1081.75 wasn’t recovered. In fact, piercing 1081.75 momentarily by 1 tick triggered a 12-point plunge into the close.

Pattern points (And technical influences)
The last-minute 12-point plunge was perfectly reasonable within the parameters. But it was entirely unexpected in a session that avoided any substantial trending intraday. What little there was developed only during timing windows that prevented the trending from gaining traction.

The morning’s bounce from gapping down stayed in negative territory. The noon hour’s fresh session high was never exceeded. The afternoon’s dip came during its no-bias environment.

Even the 12-point plunge to new session lows failed to gain traction. Its low touched the 1070.00 pre-open low and stopped. Closing without touching 1070.00 would have left pent-up selling pressure. Closing under 1070.00 would have triggered lower targets.

Not that lower lows can’t be probed. In fact, the Globex open gapped down to lower lows and already probed 1065.00. The objective is a retest of Friday’s 1054.00 opening print. Gapping down to test it Tuesday morning would expend a lot of selling pressure – selling pressure that wasn’t pent-up or triggered at Monday’s close – selling pressure that could immediately lose traction upon touching the 1054.00 objective.

Bottom line (My underlying premise)
Failing to hold a retest of Friday’s low would be the product of a new downleg, and not just a temporary probe of new lows. Recovering overnight to open Tuesday back above 1080.00-1081.00 would leave the decline’s resumption for another day, and probably for another week. A heavy econ calendar Tuesday could trigger a reversal of any early 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.

[pay]About that close (How the prior session ended)
Friday afternoon’s 21-point slide from 1088.75 to 1068.00 was pretty choppy for a four-hour, 21-point move. RSIs deteriorated while chipping away at the support offered around Thursday’s 1070.00 close. Its break would have triggered a 17-point plunge targeting the open’s 1051.25 low. Expiration’s influence inverted the pattern’s outcome into a 20-minute surge back up to 1086.75.

Pattern points (And technical influences)
Since Friday’s late surge was contained entirely within the afternoon’s downleg, its sponsorship gained no traction, making it only noise. RSIs weren’t bullish at the surge’s origin, but not so bearish as to require the surge’s failure. Distance makes the heart grow fonder, and the weekend’s pause might invite new sponsorship to try gapping up at Monday’s open.

The trick to gapping up is to probe Friday’s 1088.75 high overnight. Testing it as support at Monday’s open would be likely to recover and extend higher. Also touching Thursday’s 1093.75 prior highs overnight would undermine the gap’s momentum, and failing to recover it after the open would be bearish. Extending higher would target Wednesday’s “higher prior lows” or its gap close up to 1104.00 or 1110.00.

The other trick to gapping up is to avoid gapping down. And after having trended up into Friday’s close, gapping down under the afternoon’s 1068.00 low would trigger a session-long decline. Its objective would be to test of Friday’s opening gap down at 1154.00. Its potential would be to resume the decline.

Before last week we covered a variety of reasons why the “flash crash” low would be retested. Its retest came quickly, and the retracement was pretty aggressive. Seven consecutive sessions that closed under the prior day’s high, including two big gaps down. A lot of selling pressure has been expended without refueling. That tends to find it sorely lacking just when it is needed most, upon testing support. Indeed, Friday’s open was quite a low.

However, Friday’s low probably isn’t durable because two “V” bottoms are like two wrongs. And mama always told me two wrongs don’t make a bottom (mama was a technical analyst, too). Backing and filling would have reflected ownership changing hands from weak sellers to strong accumulators. Madly rushing back to the low means strong hands are dumping too.

Memorial Day is only one week away, and the illiquidity of three-day holiday weekends makes trending difficult. So, extending Friday’s bounce beyond Tuesday’s open could delay the decline’s resumption until mid-June. Meanwhile, Friday’s opening gap down at 1154.00 – like all opening gaps – needs to be retested at some point eventually. If tested Monday, then its recovery could launch a sizable corrective rally, but only that. Failing to hold its test on a closing basis could find an even madder rush of sellers trying to beat the holiday illiquidity.

Bottom line (My underlying premise)
Strong hands don’t act aggressively at market turning points because by nature of their size they have to act early. Friday’s late surge was influenced by expiration, which tends also to influence Monday’s open, if not the entire morning. Getting past that window will quickly reveal whether market plans next to be influenced by the new downtrend, or by the impending holiday weekend. [/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 last half-hour plunged from yet another test of 1089.00, down to new session lows at 1069.50. The afternoon’s last short-entry parameters were triggered 30 minutes earlier under 1088.00 and 1086.25. Futures extended down to 1067.25.

Down 21 points in 30 minutes, retesting the low, RSIs simultaneously oversold. Surely sellers must pause to refuel, right? Actually, this was a rare instance in which holding short through the close could be considered.

Pattern points (And technical influences)
Why – don’t oversold RSIs reflect a vulnerability to bouncing? Yes, normally. The decline’s sponsorship thins out as its selling pressure gets expended, and price becomes less attractive. Then weak-handed, bottom-fishing knife catchers start buying in hopes of a quick bounce. Their buying combines with less selling and a rally ensues. Then bigger sellers step in again.

That’s normally, intraday. But weak-handed buyers don’t exist at the close. So, Thursday’s last-minute oversold RSIs were vulnerable to extending down without delay. In fact, 1063.00 was touched by 4:45pm ET.

1-minute RSI diverged positively into the post-close low. A near-term bottom could form if 3-minute RSI also leaves oversold territory on a lower low to 1061.75. But there’s not much support under 1059.50, except for May 6’s 1056.00 “V” bottom. And its support is only obligatory.

This being expiration Friday, potential weirdness can’t be counted out. Somehow recovering 1082.00 through the open could also trigger a near-term bottom. Weirdness tends to travel in packs, so strength might get some benefit of the doubt along with tight trailing stops.

Bottom line (My underlying premise)
Trends tend to extend when expiration Friday is greeted at a new trend extreme. And expiration’s characteristics tend to repeat on Monday. Unless this cycle throws the market a curve – or some sort of intervention were to blind-side the bearish posture – much lower lows lie ahead… FYI: I recorded Thursday’s market wrap – click here.[/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)
Wednesday afternoon’s lows tested 1107.00-1108.00. Its break would have presaged a disastrous downleg capable of probing new session lows today. Whew. The afternoon’s high was retested, 10-11 points higher at 1118.25. So, it seemed like a big deal, but it wasn’t.

In fact, the cash session close dropped back to 1112.75, and futures fell 3 points further to 1109.75. Even the last half-hour’s 17-point round trip maintained the afternoon’s earlier characterization as “ranging around 1113.00.”

Pattern points (And technical influences)
The close left the market dangerously close to the afternoon’s 1107.00-1108.00 low. At least the session ended in decline instead of bouncing. Otherwise, gapping down under the afternoon’s low would have triggered a session-long decline.

Being only 3 points under the futures close, gapping down under 1107.00-1108.00 should be simple. So simple, that not gapping down under it would be bullish. Of course, the market rarely takes the simple route.

For example, the gap back up to Wednesday’s 1112.75 cash session close will try to attract price higher. In fact, a bounce at Wednesday’s Globex open has already probed 1112.75 by 3 points up to 1115.75.

Recovering 1116.00 might extend higher to probe Wednesday morning’s 1122.75 high. But reversing down to break under 1107.00-1108.00 would target a retest of Wednesday’s oversold RSIs at its 1098.75 low, presumably also the outstanding objective at 1096.00.

Bottom line (My underlying premise)
Thursdays can behave like a Friday morning during a decline. Excessive fear of a sell-off can shift selling pressure forward. Its initial effect can be self-fulfilling by exacerbating the decline. But it can also push price down to unsustainable levels that suddenly become more attractive to buy. A rally Thursday would deny the market this opportunity to form a sustainable bottom. [/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 last hour quickly established a new session low at 1115.25. And it quickly produced a bounce up to within 1 tick of the afternoon’s 1124.75 bias-down target. The prolonged testing there – repeatedly probing lower lows without ever recovering – had warned the drop from 1147.50 wasn’t over. Testing 1115.25 wasn’t over, either. The bounce was retraced entirely within a half-hour. The last half-hour’s bounce failed into the close.

Pattern points (And technical influences)
The Globex session’s first half-hour was still all about 1115.25, almost flat-lining there. Like the afternoon’s earlier failure to recover from 1124.75, another ledge had formed. And like the afternoon’s earlier ledge, another drop followed. Early Globex action has already tumbled 5 more points down to 1110.00.

One day after May 6’s “flash crash,” the market ranged widely within May’s afternoon downleg. May 7’s last hour consolidated in an 11-point range down to 1100.00. Tuesday’s post-close drop to 1110.00 represents the upper-end of May 7’s last hour consolidation. In other words, this is where buyers and sellers agreed to end the week after absorbing its rather large drop.

Now that area is being retested, after having bounced sharply in the interim – and after having bounced sharply at the prior session’s open. Meanwhile, the reverse triangle pattern I described during Tuesday’s morning Market Tour is initially targeting 1096.00, just under the lower-end of May 7’s last hour lows.

Gapping down into the target could expend too much selling pressure, in the same way that Tuesday’s gap up quickly peaked. Disaster could be averted by stalling after a gap down to targeted support. Disaster could be repeated by bouncing first to refuel sellers, or by extending down to give sellers traction.

Bottom line (My underlying premise)
Tuesday’s slide expended a lot of energy, but it also generated a lot. And closing under a prior low earned the decline traction for its effort. Gapping down as currently indicated by the post-close drop would need to extend down as well to continue gaining traction. Only a recovery above 1124.75 would even begin to make a recovery leg possible. [/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.