Market Wrap

[pay]At the close (How the prior session ended)
Monday’s last hour was like Friday’s last hour, ranging flat to lower, and then definitely lower. The 3-minute RSI had diverged negatively upon tests of 1110.00, and meanwhile, 1-minute RSI refused to become overbought. Price extended 2 points higher despite MACD deteriorating. The setup played out with a dive down to 1104.75.

1104.000-1104.50 was pivotal. Whether stopping optimistically short of touching it, or just plain closing under it, either setup would have extended the late dive. Instead, the dive touched 1104.000-1104.50 within 1 tick, close enough to rob sellers of their traction, producing a bounce into the close.

Pattern points (And technical influences)
Monday afternoon’s “rally” – relatively speaking – developed during a no-bias environment. It stretched up to the 1110.50 bias-up signal, but not higher. It was a classic example of expending buying pressure (or selling pressure) during a time frame incapable of gaining traction. Not plunging would have been inappropriate.

The afternoon rally may also be an example of a false break. It emerged from the morning’s post-open consolidation. This consolidation had formed a Symmetrical Triangle, which tends initially to break falsely in one direction. The pattern’s false break can be premature, and not necessarily in the wrong direction. In any case, the afternoon rally’s false break was retraced entirely. So now, either Monday afternoon’s rally will resume Tuesday and produce new highs, or Monday afternoon’s reversal will extend down into a new downleg.

Monday morning’s no-bias environment had held a test of the bias-up signal. Its objective to test the 1101.00 bias-down signal remains outstanding. It will be neutralized if tested. Delaying its test for an entire timing window tends to exceed the target when eventually met.

Bottom line (My underlying premise)
Monday morning’s pre-open high at 1112.75 doesn’t require a retest, but its retest is likelier than not until there’s a close under prior lows. Its test intraday is no longer assured of pushing back down, but that’s still likely, too – at least, if tested prior to testing 1101.00. Meanwhile, there is no assurance that 1101.00 will hold or not, regardless of what order it is tested.[/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]At the close (How the prior session ended)
Price didn’t net any improvement Friday past the morning’s gains. The noon hour was entered at 1108.00, and the afternoon ranged 3 points either way around it. Nothing unusual in that, not for an afternoon, not for a Friday, and not for an expiration. [Yellow on the nearby chart highlights each of last week’s cash sessions.]

Pattern points (And technical influences)
It’s also not unusual – not for an expiration – that Friday’s new recovery high failed ultimately to close above Thursday’s high [boxed in red]. While Friday’s cash session close was above Thursday’s high, futures ended lower. Albeit barely lower, but still in the process of testing Thursday’s high.

Regardless, expirations don’t have a history of producing breakouts. And among the rare breakouts that they do attempt, don’t have a history of being confirmed on Monday. A higher close would get a benefit of the doubt, but there would still be doubt, especially if volume remained low.

In the context of Friday not being a breakout, buyers did not gain traction despite probing new highs intraday. This means the only way to extend the rally is by gapping up. So, at the risk of being whipsawed, gapping up would get a benefit of the doubt for being able to extend higher. There would still be doubt, and little tolerance for a pullback.

While Friday afternoon was ranging sideways, its two cash session lows tested Thursday’s 1106.00-1106.50 “higher prior lows.” Its support has been chipped away, leaving little defense to prevent 1101.00.

Indeed, some retest of Thursday night’s 1093.00-1095.00 lows should be retested eventually [highlighted blue on the above chart] if only the range’s 1095.00 upper-end. Closing under its 1093.00 lower-end would signal a downleg underway.

I’m including a bigger picture look that stretches back into October. It shows the last two tops, their pullbacks, and their resolutions. It also highlights their similarities. These seem pretty far removed from each other to be constrained by my rule that consecutive similar setups resolve differently.

Nevertheless, last week’s action has already slid through its prior high [circled red], expending buying pressure, unlike November’s extension that gapped up. Also, the current bottoming effort fell further, stayed longer, and recovered (this far) faster. But the underlying structures are similar enough to be prepared for a different outcome, if not outright anticipating it.

Bottom line (My underlying premise)
Monday morning’s action won’t be predictive because expiration tends to influence it, too, almost as much as Friday. Whether it trades higher, lower or flat, it’s the close that will be telling. That said, there’s not much room or much time for much of a pullback without sellers gaining traction. A recovery to extend higher needs to hold 1101.00 or 1095.00. Much lower for much longer could get much, much deeper by mid-week.[/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]At the close (How the prior session ended)
Thursday afternoon’s 7-point surge was launched from 1100.00. Had it zigged instead of zagged, then the pre-open 1093.00 low would have been retested. Its test is all but required because its RSIs were oversold. It was also the outstanding objective of the morning’s no-bias environment.

But the market was more interested in stretching buyers thinly. Plenty of indicators suggested the 7-point surge was a false breakout. A productive pullback limit at 1104.00 was revisited, and RSIs diverged negatively.

The last 90 minutes still formed a pattern capable of one more failed surge Friday morning. Instead the Fed hiked the Discount Rate after the close, accelerating the reversal’s schedule. S&Ps plummeted more than 10 points to test 1095.00.

Pattern points (And technical influences)
Thursday’s low volume on higher highs was not surprising. Rather, it was in-line with Wednesday’s tepid follow-through to Tuesday’s rally. Price action has been distributive ever since the 1093.00-1095.00 corrective bounce target was met.

Like the afternoon’s breakout attempt that preceded it, the plunge’s timing came on the cusp between timing windows. There’s probably only one chance Friday for a decline to gain traction, and it is the same chance as Thursday: maintain an immediate break under 1093.00.

Whenever a critical level is tested, not breaking it means its sponsorship has run out of steam. So, a probe of 1093.00 that recovers 1095.00 (or a probe of 1095.00 that recovers 1099.00) would allow momentum to reverse up.

Extending down would next target 1086.00 and 1075.00-1076.00. If touched intraday, not closing lower would rob sellers of their traction. If the rally from last Friday’s 1060.00 low has in fact been a correction, then the prior Friday’s 1040.75 low would be in-play.

Bottom line (My underlying premise)
It’s always interesting when expiration gets a wrench thrown into it like this. Like any Friday, the morning’s bias signal tends to persist through the noon hour. Expiration biases tend to extend through Monday morning. If the decline can’t resume Friday on these factors, then it probably won’t resume before attacking January’s “higher prior 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]At the close (How the prior session ended)
Wednesday afternoon’s price action was like watching paint dry. The entire session was already narrowing its range into a Symmetrical Triangle. Even FOMC Minutes couldn’t push price beyond a 3-1/2 point range one hour later.

The last half-hour did finally print a fresh afternoon high. Momentarily. And not until after the 3:10-3:20 window barely firmed. That was retraced back down to the 1096.50 interim low where a pullback limit had just been touched.

Probing under the 1096.50 pullback limit by more than 2 ticks would have triggered a sell signal. It would have been the session’s first sell signal (other than a 1-minute RSI negative divergence before the FOMC news) but the dip stopped 1 tick short. The market then ticked higher after the cash session close to touch the 1100.00 overnight high.

Pattern points (And technical influences)
Tuesday’s test of the 1093.00-1095.00 target satisfied a lot of buying pressure. Attempts to extend higher both overnight and intraday were retraced. This is despite gapping up after a session-long rally. It’s not a sell signal, but it doesn’t reflect buyers gaining any new traction.

3-minute RSI avoided overbought and oversold territory. So did 1-minute RSI, mostly. That doesn’t help the rally prove it is more than a correction. Oversold RSIs could be trapping sellers. Overbought RSIs could be reflecting strong buying. But RSIs hardly did either.

Meanwhile, the pullback from overnight highs created room to absorb future buying pressure. Left outstanding, that could have helped to resume the rally at Thursday’s open. But its attraction was neutralized after Wednesday’s close.

Bottom line (My underlying premise)
The morning’s econ reports are going to be tricky. They can also be helpful to resuming the rally. A strong open Thursday would be credible for extending sharply higher through the morning, because such strength at this stage would mean new sponsorship had arrived. The old sponsorship is done, so a weak open would mean reinforcements weren’t coming. Indeed, maintaining a break back under 1093.00-1095.00 would mean the corrective bounce had likely ended.[/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]At the close (How the prior session ended)
Tuesday morning’s gap up had essentially put into play 1093.00-1095.00, so long as no pullback limit’s test triggered a sell signal along the way. The afternoon’s narrow range held the morning’s “lower prior highs” as support. And having edged higher into the last hour and having held off sellers through 3:10-3:20, the pattern became extra vulnerable to squeezing higher into the close. In fact, Tuesday’s last half-hour surged up to 1094.00.

Pattern points (And technical influences)
Every session last week overlapped the prior Friday’s range, the session that contained the trend low. Despite probing higher through the week, prices weren’t becoming overbought. The decline had lost its momentum. Without a gap down to resume the decline, the rubber band needed to be stretched thinly.

That was the purpose of gapping up through the weekend, to do what last week’s ranging did not: stretch the rubber band in one direction to react the other way.

The upper-end of this effort is essentially the gap back up to Feb 3’s close. It wasn’t filled entirely Tuesday, but the lower-end of its structure was probed. Whether done as part of the open, or after recovering an initial dip, the pattern’s timing suggests the rubber band will be stretched to its limit Wednesday.

Probing higher highs, then closing both negative and under the morning’s low (in case of initially dipping) would launch the next downleg. An immediate gap down maintained under the 1086.00 area would achieve the same objective, so long as the character of selling was relentless. Probing the 1095.00 area and closing higher would suggest a much bigger bounce underway, instead.

Bottom line (My underlying premise)
Except for the trend’s low, there hasn’t been much pessimism expressed. And even that pessimistic extreme attracted such optimistic buying that it has yet to be retested intraday. This didn’t form a base capable of launching a durable rally, but it still makes sense to let the bounce prove it has ended before positioning for a decline.[/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.