Market Wrap

[pay]About that close (How the prior session ended)
Occasionally after an unchanged open, the market stays unchanged. Price still fluctuates away from unchanged, but it then returns to unchanged at almost every relevant timing window. Very often this setup tells us very early (like, in the first 15 minutes) that trending is unlikely until the last hour, if at all.

Monday’s open gapped up, and then started retracing into each passing checkpoint. The open’s gap up didn’t make trending unlikely, just more difficult. But it did make the last hour likely to trend. And it didn’t.

Pattern points (And technical influences)
Monday’s extended narrowing range could have neutralized one side or the other before the close. A last-hour trending attempt, with no time to be undone, could have avoided a false breakout and reversal. Instead, Tuesday’s session will be greeted not just with both pent-up buying pressure, but also with pent-up selling pressure.

The first trending attempt from an extended narrowing range tends to be false, and soon retraced, reversing more substantially in the opposite direction. A breakout attempt below 1163.75 or up to 1172.25 would likely reverse sharply.

It’s actually not too late for Monday’s close to let the steam out of one side or the other. A gap beyond either end of the 1163.75-1172.25 range would serve by proxy, so long as the gap quickly became trending.

Bottom line (My underlying premise)
Whether up first, or down, the target would be a retest of the recent 1176.25 high or of the 1156.50 low – by a 3-5 point margin. That’s not trending, it’s ranging, and that’s more of the same price action as last week. If trending is going to be a factor during this holiday-shortened week, then it should announce its presence by Tuesday afternoon. Monday’s gap up was not that announcement.[/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 only thing remarkable about Friday’s last hour is how unremarkable it was. Price action was essentially stuck within a relatively narrow 2-point range. The 3:10-3:20 timing window didn’t trend. Not until the position-squaring window ended was there any semblance of trending – adding all of 2 points into and out of the cash session close.

Nevertheless, this did form the basis for a setup, the session-long decline. The setup’s basis is trending up into the close, further from an afternoon low that printed before the last 30-60 minutes. The setup is irrelevant if not triggered by Monday’s open gapping down through Friday afternoon’s 1156.50 low.

Pattern points (And technical influences)
Gapping down to Friday afternoon’s 1156.50 low or testing it will be much easier than actually breaking through it. It happened to form upon fulfilling the afternoon’s 1156.75 bias-down target. Selling pressure was satisfied. The closing bounce managed to touch the afternoon’s 1163.75 bias-down signal, but it wasn’t recovered.

Perhaps selling pressure was fulfilled at the afternoon’s 1156.75 bias-down target, but its oversold condition was neutralized. The low’s retest is likely, since its RSIs were simultaneously oversold. Quickly testing and holding Friday’s low would suggest that sellers were done. RSIs diverging positively would suggest that accumulation was forming a bottom.

A bottom would be surprising. At least one of Thursday’s sell signals was fairly substantial, in its structure, timing, location, and degree. There was nothing bullish about it, and one day of follow-through hardly seems adequate to satisfy its distribution. Especially since the follow-through was interrupted by another opening bounce.

Friday’s close was still in the process of testing Thursday’s close as resistance, ignoring plenty of time to recover it. Meanwhile, the afternoon’s bounce peaked upon retracing 61.8% of the noon hour drop.

Bottom line (My underlying premise)
Friday’s last 90 minutes looks more like patient sellers, than like ineffectual pessimism. But if pent-up buying pressure produces a third consecutive gap up anyway, then it is likely to be rejected for a third consecutive time. Recovering Friday’s 1169.00-1170.00 high would negate the sell signals already in place. Holding a retest of Friday’s 1156.50 low would suggest the sell signals have ended. Otherwise, the sell signals in-play have met one target, corrected it, and are now ready to put the next lower target into 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)
Thursday’s last hour trended down throughout. It started with a bounce to 1171.00 and ended within a tick of 1160.00. The cash session close equated to 1161.50, just 1 tick under Wednesday’s low.

That was enough to make Friday’s open likely to gap down. Had Wednesday’s low been probed any deeper before recovering, or had the recovery been any more substantial, then perhaps not. In fact, after futures bounced to nearly 1163.00 into its close, the Globex open fell to fresh lows at 1159.25.

Pattern points (And technical influences)
Thursday’s session lost about 2 points. That hardly reflects the intraday 12-14 point gain. Its complete retracement hardly reflects the open’s 7-8 point gap up, a gap up to new highs no less. But it is entirely consistent with Tuesday’s false breakout, and the warning that any duplication of the effort would also be the product of weak hands.

The intraday price action formed a couple of interesting setups, described below. Bearish though they may be, one thing it didn’t do was close under a prior relative low – which would actually signal the trend reversing down.

Gotcha! Wednesday’s session never printed fresh highs, and Thursday’s session did. Note how this distinguishes from ongoing trending; rather, it is trending that is trying to resume. That resumption falls flat when the session that probes new highs then fails to close above the prior high close. I call this a “Gotcha!”

Typically this marks a trend high, while also signaling its reversal. It is normal for the afternoon action to offer  a taste of things to come, but still leave pent-up selling pressure to force a drop the following day. Thursday’s last hour slid relentlessly, making it more difficult to trend down Friday.

Pivot Reversal.  Gapping up in an uptrend and extending to new trend highs reflects a great deal of optimism. Gapping to new highs up in an uptrend, dipping back under the prior high, and then later rejecting yet another higher high? That reflects the sudden death of optimism. And that describes Thursday’s price action.

The setup often accompanies trend extremes. Perhaps more important is that it often precedes steep trending in the opposite direction. Thursday’s close back under the 1165.00 prior highs confirms the setup.

Bottom line (My underlying premise)
Given the window opened by these two setups, if neither of can produce a close under a prior low, then it’s because the rally is extending sharply higher. A close above 1170.50 would trap Thursday’s sellers – and Wednesday’s, for that matter – squeezing their shorts into the weekend. That continues to be a vulnerability so long as there continues not to be a close under a prior low. Two nearly consecutive days of trapping weak-handed buyers makes this one of the rally’s biggest threats, yet. [/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 ranging was ultimately narrow, largely contained by its 1162.75-1165.00 signals. Either end was probed, once, at inopportune times that are difficult to gain traction. The last half-hour attempted to trend up, but was unable to hold above the 1165.00 prior highs.

Pattern points (And technical influences)
Recovering the 1165.00 prior highs would have undermined the credibility of Wednesday’s sellers. This retraced all of Tuesday’s late breakout, confirming it was false. Closing any higher would have made the breakout likely to resume.

Which is not to say that momentum has reversed down. The open’s gap down held 1165.00 as support, instead gapping under it. The morning’s lower lows probed under overnight lows but didn’t extend down. And Tuesday afternoon’s low held as support despite repeatedly chipping away at its support.

The one thing missing from this rally has always been a close under prior relative lows. That’s why it’s still a rally. Not a prior day’s low, or a prior high, but a pullback’s low. The nearest such relevant low is 1150.00-1152.00, which would be targeted by closing under 1159.50 and 1157.50.

Otherwise, in the absence of decline, Tuesday’s 1169.50 close could be retested – this time not by proxy, but actually probing fresh highs up to 1172.25. Closing the same session back under 1165.00 would form the short-entry opportunity of the year. A new high close would instead give the rally what is now a much needed boost.

Bottom line (My underlying premise)
Jobless Claims is the day’s only high-profile econ report. And it will be history well before the open. Employment has been a more widely regarded than home sales activity as a measure of the economy, but it’s not necessarily different. That could be a problem, since home sales data as late as Wednesday morning was worsening again.

PROGRAMMING NOTE: Don’t forget that the Morning Market Tour will be almost one hour early Thursday, at 8:00am ET instead of at 8:55.[/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 afternoon had avoided any repeat of the morning’s sell-off attempt. The no-bias environment started lapsing after 2:30 with price at session highs, at the afternoon’s 1164.25 bias-up signal. The potential to probe fresh highs couldn’t be discounted, let alone the potential for fresh highs to gain traction.

This vulnerability was made clear by a sudden spike up after the last hour started. The 3:10-3:20 window trended up to higher highs, essentially marginalizing sellers for the day. The breakout extended until touching the afternoon’s 1170.50 bias-up target, where 1-min RSI diverged negatively.

Everything about the breakout says excessive optimism. Its timing was too late to be the product of accumulation. Its steep slope was appropriate for a short-squeeze. Its relentless follow-through ignored an opportunity for dip to refuel. Even after the cash session close, price only ranged narrowly at the breakout’s highs.

Pattern points (And technical influences)
The morning’s dips weren’t accumulation. If they were, the the eventual breakout would have occurred before the session’s last hour. Whether after the noon hour or when the afternoon’s bias environment was lapsing. New highs in the last hour aren’t the problem – waiting until the last hour is.

The morning’s dips reacted with probes above prior highs. Any one of those could have gained traction, but didn’t. Instead, each test held through a relevant timing window.

Fresh breakouts are at their most vulnerable to being proved false. Gapping down Wednesday to the 1164.00-1165.00 “lower prior highs” would still be likely to retest Tuesday’s 1169.50 close, up to 1172.25. Gapping down under Tuesday afternoon’s 1162.25 low or extending under it would trigger a session-long decline.

Bottom line (My underlying premise)
False breakout or not, excessive optimism can become more excessive. Actually, this is much easier than turning a pessimistic condition optimistic. Extending Tuesday’s breakout higher (and not just briefly probing higher highs) would next target 1179.25-1181.25. Regardless, avoiding a drop back under Tuesday morning’s highs would mean that sellers, as with Tuesday morning’s dips, simply aren’t ready to retake control.[/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.