Market Wrap

[pay]About that close (How the prior session ended)
Monday’s last half-hour surged 12 points higher, and the session’s close was in the process of testing 1135.00-1136.00. Deja vu. That’s how Friday’s session closed, too, surging 12 points to the same area.

Pattern points (And technical influences)
Friday’s surge was noise. Its buyers didn’t gain traction despite expending a lot of energy. The combination created a vulnerability to reversing down, which came Sunday night. Monday’s surge wasn’t noise, but it may have already fulfilled the pattern that created it. Not leaving buying pressure pent-up overnight also creates a vulnerability to reversing down.

Anyway, Monday’s buyers didn’t gain traction either. The overnight and intraday dips created a lot of room to absorb buying pressure. A rally needed to recover a prior high but buying pressure was already gone by then.

Monday’s noon hour low at 1112.75 finally delivered a break of the Descending Triangle that had formed Friday afternoon. The overnight low had required a retest since it was the product of a unique downleg. Monday’s intraday drop wasn’t just a retest, so the oversold RSIs at its low also require a retest.

Bottom line (My underlying premise)
An opening dip Tuesday has room down to the 1131.00 area before sellers start gaining traction to retest Monday’s low. Rallying at Tuesday’s open would be bullish, preferably by testing Monday’s highs as support by then, after pulling back from higher highs overnight. If sellers gain traction at the open, a third consecutive recovery from lower lows would be unlikely. Buyers gaining traction would have potential to 1156.00 or higher.[/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 1125.00 bias-down signal was tested three times. The third time came after the no-bias environment was lapsing, so trending would be free to resume. Even more bearish is that it was a Friday afternoon, attacking new lows. There was no reason for the decline to hesitate. Yet, at only 1124.00, that’s exactly what it did. The hesitation was a warning in disguise.

Unfortunately, it only warned to cover shorts. It didn’t necessarily require the potential break lower to be replaced by anything in particular. Earlier price action had already ruled out a short-squeeze – meaning that the afternoon’s range would not break higher. But the range’s upper-end was 10 points higher at 1134.50. Short-squeeze, or not, 30 minutes later it was being tested into the close.

Pattern points (And technical influences)
Friday’s closing surge was bearish. By definition (my definition) the surge was only noise, no more productive than moving from one end of the 1124.00-1134.50 range to the other. Buyers gained no traction for their effort. This might not matter otherwise, except it was 10 points in 30 minutes, and that’s a lot of effort to expend.

The surge’s “ineffectual optimism” creates newly pent-up selling pressure. It is compounded by futures closing above the range’s upper-end, whose probe to 1136.25 had been rejected by the cash session close. And it compounds the afternoon’s unfulfilled selling pressure – new lows being threatened just 30 minutes earlier never printed, avoided by excessive optimism.

Monday’s open could very well retrace all of Friday’s surge by gapping down under Friday afternoon’s low. Gapping down under Friday afternoon’s low after trending up into the close could trigger a session-long decline. Wouldn’t that be an interesting Monday.

Time may not heal all wounds, but a 50-hour pause can dull memories. If Monday morning’s open isn’t already declining, then a bigger bounce may already be underway. Resistance at 1140.00-1142.00 might push back. But unless resistance were to push back early enough – like, Sunday night – resuming the decline would be difficult from above the strong support of Friday afternoon’s “lower prior highs.”

Bottom line (My underlying premise)
Steep and deep Friday morning drops can be exacerbated by the impending two days of illiquidity. Selling pressure appears that might not have otherwise, or that might have been delayed until the afternoon. Friday’s surge came too late for that template, but it may be self-fulfilling in the near-term if not already being rejected at 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.

[pay]About that close (How the prior session ended)
Thursday’s ranging had formed a Symmetrical Triangle. The last chance to rally was missed when the afternoon’s bias environment lapsed after 2:30. A 15-point slide fell as low as 1153.75. But ultimately the last 45 minutes probed 1156.50 three times as support, where the session closed.

Pattern points (And technical influences)
1156.50‘s relevance dates back to it being the minimum objective of the drop from April’s highs. It’s not necessarily resistance now, any more than it was ever support. But it is still a good touchstone for whether buyers are gaining traction. It defined Monday and Tuesday’s closes, and the lower-end of Wednesday’s ineffectual optimism (session-long rally that only tested the prior day’s high).

Closing at 1156.50 Thursday confirms that buyers still haven’t gained traction. It doesn’t signal that sellers are gaining traction. At least, not directly. By not extending higher, buyers have opened the door wide for sellers.

Enter the Pivot Reversal setup, which Thursday’s price action formed: Gapping down after multiple gaining sessions, probing fresh trend highs intraday, and reversing to close under the morning’s low. The pattern identifies momentum reversing direction.

Thursday’s close was a little further under the morning’s low than optimal. Selling pressure was shifted from Friday’s session, perhaps too much to immediately resume Thursday’s decline. Once 1156.50 was touched, closing under it would have made the other issue moot. But as you see…

Bottom line (My underlying premise)
This being a Friday, the morning’s bias signal is likely to persist through the noon hour. A test of prior highs or lows must break early to have much chance at breaking at all. And if sellers aren’t going to gain traction, they may let buyers have a little bounce to refuel further – a bounce on which buyers might gain traction. The day could be subdued, or full of fireworks, but we should know early either way.[/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)
A surge into Wednesday’s last hour quickly met the afternoon’s 1171.25 bias-up target. Buying pressure was satisfied and there was no other unfinished business above. The breakout attempt lacked momentum since the last hour was entered from below two prior highs (circled red), instead of from under just one.

So, the market dipped. There was no distribution at the high to trigger a downleg, just room for a reaction down to 1167.75. And that’s where the reaction bottomed, until the bottom of the hour had passed, when trending was unlikely to begin. The last half-hour eventually firmed to close back at the session’s prior highs (yellow highlight).

Pattern points (And technical influences)
Tuesday’s rally was fueled by sellers expending energy Monday night without gaining traction. When Tuesday’s open at Monday’s low failed to extend down, a 24-point rally was fueled by trapped shorts covering.

Tuesday afternoon’s slide extended down overnight. This time Wednesday’s buyers made their move well before the cash session, which opened 16 points above the overnight low. And this time there was no intraday reversal.

The day-long uptrend was productive, probing fresh highs. But Tuesday’s prior high was still being tested at the close. So, the question is whether Wednesday’s intraday buyers are in the same spot as Monday night’s sellers. Did they gain traction for their efforts, or did they only test the range’s upper-end.

The question has two answers, 1165.00 and 1162.50. A pullback has room down to 1165.00 before sellers start gaining traction, which would be signaled under 1162.50. Timing is important, too. Even a shallow overnight pullback won’t be safe from reacting poorly to Thursday’s Jobless Claims. Extending the rally at this stage all but requires that its slope steepen exponentially.

Bottom line (My underlying premise)
A favorable reaction to Thursday’s pre-open econ report is likelier if fresh highs are already being probed. The next higher targets would be 1175.50 and 1177.25, which would have to be rejected early and aggressively to avoid threatening new highs. That may not be an option if the rally’s slope does steepen. Unfinished business below would remain outstanding. [/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 surge was doomed before it began. It originated after the 1165.00 bias-up target had already held as resistance through the 1:20 timing window. Its failure could have triggered a dip to refuel buyers. But the dip wasn’t deep enough quickly enough to trap shorts. Instead optimistic buyers defended the 1160.50 bias-up signal as support into 2:30.

Those trapped buyers became sellers, further fueling the bounce’s reversal. A late bounce failed to recover 1158.00-1159.00 just like Monday’s last-minute surge. And this time the failure to hold above 1156.50 was more obvious.  Rather than close at 1156.50, Tuesday’s cash session ended 3 points below it, while futures slipped another point to 1152.25.

Pattern points (And technical influences)
Also similar to Monday’s failed last-minute surge, the market extended down overnight, but without the wait. The slide extended into the Globex open, and accelerated to 1142.50.

The 1146.00 minimum target of Tuesday afternoon’s slide was sliced through as support, so now a bounce is acknowledging it as resistance. Oversold RSIs at the 1142.50 low make its retest likely. The low’s retest would be required if this setup had occurred intraday.

The low’s retest may as well be required. In my market wrap comments I noted how bearish Tuesday’s close was. Of the two possible bullish resolutions, only one remains – for a gap down to be attracted up by the gap back to Tuesday’s close. Even that was unlikely since Tuesday’s open already played that card.

Recovering the overnight dip to open up above 1156.50 would be bullish, assuming it also extended through 1160.50. Otherwise, the next lower objective is 1131.00, and it should be another interesting overnight.

Bottom line (My underlying premise)
There was no unfinished business above the market before Tuesday’s session, only the potential for testing 1164.00-1165.00. Now not even that remains. It’s not necessarily a sell signal, but it does create the vulnerability. And the only unfinished business that remains outstanding is at Thursday and Friday’s 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.