Market Wrap

[pay]About that close (How the prior session ended)
The afternoon’s 1153.00 bias-down signal wasn’t even touched until the noon hour ended. Its break was still valid – in fact, its 1147.50 bias-down target was quickly met, and later probed by 3 points. But the break’s sponsorship came too late to be durable. So there was no bearish posture.

Almost the entire afternoon had elapsed. The last half-hour finally compensated for the delay by surging into the close. Just closing above 1151.00 or above 1153.00-1154.25 would have been considered for holding long through the close. But extending back up to 1158.00-1159.00 borrowed too much pent-up buying pressure. It wasn’t a sell signal, and it could extend higher without further delay. But there is vulnerability to dipping overnight.

Pattern points (And technical influences)
Monday’s bounce was of unusual dimension. But its recovery above prior highs was still a recovery above prior highs, and that’s what dictated how it might react. Although those recovered levels had been visited only briefly on the way down, their support was still unlikely to give way on a first test. In fact, they held, and their test ultimately produced a surge into the close.

There is no unfinished business above – there is only the potential to probe Monday’s highs to 1164.00-1165.00, and perhaps even gain traction for 1175.50-1177.25. But having chipped away at so much support for so long Monday, the eventual retest of Monday’s lows will be less likely to offer similar support.

Gapping down Tuesday under Monday’s ~1145.00 lows would negate the potential for probing higher highs. But retesting last week’s lows would be hampered by support at 1131.00-1132.00. Temporary support, but a delay mechanism nonetheless. Dipping too far for too long may not recover, or may take an extended detour below. Otherwise, the next objective is above Monday’s highs.

Bottom line (My underlying premise)
My favorite question in the chartroom Monday was essentially whether similarities between Friday afternoon’s pattern and Monday’s  (which had not yet surged) could be pointing to the same outcome. Despite differences of timing between the two, the answer has more to do with Friday’s pattern being bearish and the weekend’s news blind-siding it. One trillion euro will generally trump an active signal. No pattern can be assured to resolve perfectly when government intervention decides to play.[/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)
There was no bullish setup coming into Friday’s last hour. Dips to 1108.25-1110.00 had bounced repeatedly (highlighted red), only to have failed when relevant timing windows closed. Since Friday’s last hour is a product of the session’s earlier influences, 1108.25-1110.00 was going to hold as resistance into the close. In fact, fresh lows probed 1100.50, and 1108.25-1110.00 held its last-minute reaction.

Pattern points (And technical influences)
Both 1-minute and 3-minute RSIs made lower lows along with price during the last hour (highlighted yellow). Slightly lower readings don’t inspire the confidence to be predictive. But it’s probably not a bottom anyway. RSIs should be improving on lower lows at this stage of the pattern if the afternoon’s slide were ending.

The morning’s Ascending Triangle (outlined in red) was initially productive, recovering into positive territory. Then a dip probed its range before noon, which was also productive, recovering to a higher high. At this stage, there was no reason to revisit the Triangle, not unless the intent were to extend below it.

Another dip after the noon hour returned back to the Triangle. If its probe was too shallow to be sure, then later probes removed any doubt. By the way, the afternoon’s earlier shallow probe is now known to be excessive optimism. So are the later afternoon lows, which have no other reason not to be retesting Friday’s low.

About last week… (The silver lining to Thursday’s plunge)
The administration has ruled out a cyber attack as the cause of Thursday’s plunge. Whew, that’s a relief. I was very concerned. Not that it might have been true, but that the administration might actually have believed that. A fat fingered typo is at least more plausible. Just don’t as why it happens so rarely, if ever.

High-Frequency Trading algorithms are another scapegoat. Their involvement adds to market liquidity, which wasn’t distasteful during the relentless rally. A number of them did cease trading intraday, which might have exacerbated the drop. Of course, this must also be factored into the plunge’s brevity, recovering just as quickly back to where it began.

Plunges happen so rarely that those outside the industry think they are problems with the system. They are products of the system. A plunge is rarer than a sudden spike up, but one has to be rarer than the other. And plunges make up for their rarity by being more severe.

The market has behaved normally. First, by waiting so long between plunges. Secondly, and more important to a normal market, was the immediate reversion back up towards its mean. None of which is to say that the correction has ended or that a bull market will now begin. But Thursday’s action did tell us that wherever the market goes next, it’s where it should be.

Bottom line (My underlying premise)
Friday’s 1090.75 low and Thursday’s 1056.00 “V” bottom on one side. A substantial corrective bounce, perhaps new highs on the other. Sunday night will be interesting with their being promised a Greece bailout deal, and with the Gulf oil spill’s solution apparently having failed. Recovering 1131.00-1132.00 despite the news would be bullish. For now, however, the burden of proof is on bulls. [/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 hour firmed. What’s so unusual about that? Of course, it’s not often that a 33-point range from 1103.50 to 1136.00 can qualify as firming. But the previous half-hour had bounced 63 points from 1056.00. And that was after being down 108 points from Wednesday’s close. Regardless, Thursday’s last hour firmed.

Pattern points (And technical influences)
Mainstream media is helping to keep optimism alive. By scapegoating so-called “fat finger” trades in PG and ACN, or errors made at CITI, there’s still some doubt out about whether the 14-month bounce has ended. The widely-watched Dow Industrial average was down a thousand points intraday, and there’s still optimism.

This was not a crash – not, yet. The low’s RSIs were oversold, making its retest likely since that doesn’t attract durable buyers. More important than the low’s retest is how a probe of 1194.00 1094.00 and 1184.00 1084.00 is resolved. Recovering on a closing basis would promote a corrective bounce before resuming the decline. Failing to hold 1194.00 1094.00, or also 1184.00 1084.00, would put the lie to whether a couple of fat fingers are to blame.

Thursday’s late bounce to 1136.00 reversed down appropriately. But it also closed under 1127.50, which was low enough to predispose the market to react unfavorably to Friday’s news. The dip has already extended down to 1115.25, and under 1110.00-1111.00 would further predispose the market to react unfavorably. A negative reaction would likely extend, and a positive reaction would likely fail.

Bottom line (My underlying premise)
So, just what is Friday’s news? It was supposed to be the Employment Situation report. Not that its data would have affected policy, but it would have been the focus. That’s normally the econ calendar’s focus on the month’s first Friday. The calendar may be more focused on this simply being a Friday, with two days of illiquidity, rioting, and who know what, just hours away. [/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’s last hour began after a drop had neutralized the attraction at 1160.75. An RSI setup had predicted a short-squeeze. Price did firm 7 points from 1157.00 to 1164.00. But the action was not squeeze-like. Tuesday’s lows held as resistance through Wednesday’s close, and Wednesday morning’s low held as support, creating “ineffectual pessimism.” Buyers failed to gain traction, and sellers conserved their energy.

Pattern points (And technical influences)
To paraphrase Woody Allen who was twisting Rudyard Kipling, “If you can keep your head when all about you are losing theirs, then you probably need to check your voice mail.”

Wednesday morning’s television images of Greece riots coincided with S&Ps testing the long outstanding 1156.50 objective. Extreme pessimism is bullish from a contrarian perspective. Coinciding with a relevant price makes it extremely actionable. Recovering 1159.00-1161.00 targeted a 6-9 point rally to 1165.00-1168.00 that only momentarily reached 1173.00.

A lot of buying pressure was expended, only to fill the gap(s) back to Tuesday’s close(s). Buyers gained no traction throughout the morning, and the open’s gap down at 1160.75 needed to be retested. Its attraction was neutralized, leaving two others below: Oversold RSIs at the low, and the last 2 ticks of the 1154.25-1156.50 target range.

Neither one requires being retested. But they do remain vulnerable because buyers didn’t gain traction Wednesday. Their retest could either resume the decline, or else absorb sellers and launch another rally attempt.

Bottom line (My underlying premise)
The alternative to testing the lows is for Thursday’s open to gap up at least 10-11 points and to recover the 1175.00 prior highs. Entirely possible, although the open should be testing 1175.00 from above to be credible. Otherwise, retesting 1154.25-1156.50 could launch a sizable corrective rally through Friday’s Employment Situation report, or else extend the current decline to1146.00 and 1134.00. [/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.

About that close (How the prior session ended)
The last hour was entered with a dip down to the morning’s 1167.00 low. Or, should I say, “blip.” The blip-down touched 1166.25 one minute, and the next minute ended at 1168.75. After the bounce reached 1172.00, the last half-hour plunged to new lows at 1164.25. That was also recovered up to 1172.00. The cash session’s closing equivalent was 1170.25, but futures extended up to 1173.75.

Pattern points (And technical influences)
“That which doesn’t kill you makes you stronger.” This pretty much sums up the market’s status.

March ended with a Complex Triangle whose eventual retest ranges from 1171.00 down to 1156.50. Monday’s Trading Plan noted that the first downleg’s target was likely to be 1164.00-1165.00. Tuesday’s 1164.25 low met this target. Its 30-minute, 19-1/2 point reaction up to 1173.75 suggests the target satisfied a lot of selling pressure.

Tuesday’s pattern would have formed a “lunch hour reversal” setup, except two of its elements were at least 30 minutes late. First, the noon hour’s entry price wasn’t probed until after the bias timing window closed. And second, only the futures session closed above the noon hour’s entry price.

These two exceptions are enough to sink the reversal setup, and they’re enough to sink the market. The exceptions are also enough to be prepared in case an early sell-off Wednesday doesn’t gain traction, because it would become likely to wreverse up sharply.

Tuesday’s last-minute bounce expended a lot of energy. And futures closed with at least a 2-point premium to the underlying cash. These will try to inhibit an overnight recovery. They might also influence an overnight drop. Assuming that an overnight drop doesn’t gain traction, an attraction to fill the gap back to Tuesday’s close could then trigger a bigger rally.

Rallying Wednesday morning would be entirely appropriate for the “lunch hour reversal” setup that narrowly missed triggering. If its exceptions aren’t overcome by a morning rally, then it’s likely because the decline is extending down much more sharply.

Bottom line (My underlying premise)
If Tuesday’s drop didn’t kill the market, then it made it stronger. The last hour’s new low was only a probe of the range’s lower-end that satisfied a major target. But the last-minute surge expended a lot of valuable buying pressure. The basis for a rally is so well laid, that perhaps the only reason not to rally is because the market is crashing.

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.