Market Wrap

[pay]At the close (How the prior session ended)
A subdued no-bias environment had already indicated the session was unlikely to go out trending. So, holding a test of the range’s 1099.50 upper-end at 3:00 made a test of the range’s lower-end likely. The move was triggered under 1095.75-1096.25 and targeting 1093.00 then 1090.50. The first target held at the close, and the lower target was met after the Globex open.

Pattern points (And technical influences)
Monday’s 1089.75 low touched Friday’s pivotal low, the low prior to the 1086.25 actual low. This all but requires actually probing Friday’s low. The market would be vulnerable either to resuming the decline, or putting in a near-term bottom.

Meanwhile, Monday’s price action reflected a lot of optimism. The open gapped up, and the entire session traded in positive territory. But the optimism was also ineffectual. The afternoon’s probe of the morning’s high held. Ineffectual optimism often appears after a multiple session decline. And it often resolves in new lows.

There was an interesting similarity between Friday and Monday’s buyers. Friday morning’s dip was recovered but never converted into positive territory. Monday morning’s buyers never extended the gap up. Each expended a lot of buying pressure without gaining any traction.

I pointed out this shared property in the chartroom to help explain why not to expect a rally Monday afternoon. I point it out now to explain why Monday’s action was not the start of a recovery. Monday’s gap up masked that the momentum of last week’s decline survived through the weekend.

Bottom line (My underlying premise)
Friday’s close under 1095.50 meant that last week’s downleg would extend. Monday failed to reject Friday’s close. Thursday’s close under Dec 31’s prior low meant that the trend had reversed down, which Friday’s lower close confirmed. Without gapping up above 1102.00 Tuesday or quickly recovering a probe of lower lows, the downleg is likely to resume. [/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)
Friday’s last hour dive was phenomenal. The substantial 10-point drop essentially produced half of the session’s loss. But that only added insult to injury. The morning’s failure to recapture positive territory after probing new lows action had already shut the door on a recovery. And an ugly last hour was already predicted by the afternoon’s series of lower and lower lows that ignored a stream of otherwise bullish setups.

The cash session’s last 15 minutes developed entirely under prior lows. Futures bounced after close, but didn’t recover any relevant level. Indeed, the late bounce’s only accomplishment seems to be having off-set the low’s oversold condition. But RSIs were oversold at the low, making its retest likely.

Pattern points (And technical influences)
Apart from Friday’s last-minute optimism, plenty of the drop’s characteristics were pessimistic: Wednesday’s opening gap down is obvious, as is Thursday’s steep and deep post-open slide. There was also no corrective bounce that probed a prior high.

The important question is whether this pessimism qualifies as yet being excessive, because that could make the difference in near-term direction. Excessive pessimism depends upon whether Friday’s low probed a prior relative low, and then whether Friday’s close recovered back of it.

This portion of the downleg was targeting the Dec 17-18 consolidation. Its minimum objective was to probe that range’s upper-end, whose proxy I calculated as 1095.50. Closing any lower would signal the drop’s intention to extend by a multiple of the drop’s measurement to-date.

Essentially all of Friday’s last hour can be characterized as a drop through 1095.50, and its break wasn’t recovered through the close. But the decline extended to probe Dec 17-18’s low, which futures closed back above. However, unlike futures, S&P Cash (SPX) isn’t skewed by five weeks of time decay. The above chart shows how SPX broke decisively lower, in contrast to S&P futures.

If pessimism did become excessive, then Friday’s bearish close under 1095.50 will be invalidated by recovering the last relative high. This means either gapping up above 1102.00 or recovering it through the close. Its resistance can be probed intraday. But the probe would only refuel sellers if 1102.00 isn’t gapped through, or closed above.

Sunday night or Monday’s open can first probe under Friday’s 1086.25 low and still recover intraday for a corrective bounce up to 1107.00. But be careful not to assume that a shallow opening bounce or dip can attract the same “relief rally” buyers that have been sustaining the uptrend.

Bottom line (My underlying premise)
Friday’s loss confirmed Thursday’s close under Dec 31’s prior low. The trend has reversed down. Regardless of whether the decline is delayed, the bigger picture points down sharply to 988.00-991.00. A corrective bounce might target only 1107.00, or perhaps even new highs that retest the 1148.00 (1048.00) Globex high, filling the gap back to Wednesday’s close. But a bounce would be only corrective. And the hopes of bouncing at all will dim greatly if not underway soon after 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]At the close (How the prior session ended)
The 1112.00-1116.00 range defined Thursday’s last hour. The market had not trended into this channel, and there was no unfinished business above or below. There was eventually a drop to 1110.25, but it started too late to qualify as a breakout. It happened to come after the cash session close, but any trending begun after 3:30 is possibly noise.

The Globex open gapped down a couple of ticks and extended to 1108.50. And still the fresh low might just be noise. Its break might deserve a benefit of the doubt, but only so long as overnight action deteriorates further.

The decline’s momentum would be suspicious enough if Friday’s open doesn’t immediately extend Thursday’s late break / Globex gap. Gapping up above 1116.00 would reject the fresh lows, triggering a corrective bounce into the afternoon.

Pattern points (And technical influences)
The above chart shows the market’s round-trip since year-end. The breakout’s resolution isn’t surprising – its eventual failure was predicted by the breakout session’s inferiority. What’s surprising is that the Triple Top wasn’t probed first, if only for an intraday retest of the 1148.00 Globex high.

Wednesday’s gap down was useful to get away from the highs. Combined with the Thursday’s steep, deep drop, and shallow interim bounce, a lot of selling pressure has been expended without much refueling sellers. That selling pressure may be sorely missed with the decline’s low already filling a gap.

Waning sponsorship is replaced by stronger sponsorship. But that new sponsorship could be in the same direction. We’ll know it is if Friday’s open gaps and/or extends down sharply. The next lower target coincides with the last concerted selling effort that consolidated under 1098.00.

Extending below there would be only a formality. The extensive six-week trading range (highlighted yellow in the second chart) looks like strong support, but it isn’t. And there is plenty of other unfinished business below. The post-Thanksgiving opening gap, the early-November gap up… This rally has long sustained itself by trapping shorts, and it has racked up quite a bill to pay.

Bottom line (My underlying premise)
If Friday’s open isn’t gapping down, then it’s probably already bouncing to refuel sellers. If Friday’s opening gap down doesn’t quickly extend before probing above Thursday’s lows, then a bounce is probably forming. Perhaps it can reach “higher prior lows” up to 1126.00. The bigger question is whether it can last much past the noon hour before resuming the decline. If there’s a bounce, at all. [/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 rally was signaled above 1128.00, and it extended back up to the morning’s 1134.50 bias-down target. This is the level whose break through 10:15 renewed the morning’s bias-down environment. Its recovery would have made a profound statement about the morning’s decline, and about the afternoon’s recovery attempt.

But 1134.50 was still being tested into the cash session’s final ticks. The morning’s selling pressure has yet to be invalidated. It still could be, so long as Wednesday afternoon’s rally isn’t rejected at Thursday’s open or close. But resuming Wednesday afternoon’s rally requires either gapping up at Thursday’s open, or quickly recovering a relatively shallow dip.

Pattern points (And technical influences)
It would still be surprising for a new downleg to being prior to probing new highs. They’re likely to be brief and shallow, and then to resolve in a downleg whose minimum objective would probe December’s lows. Wednesday’s lows came close – the closest, yet – to triggering the downleg. A retest of Wednesday’s lows Thursday probably won’t recover first, no matter what unfinished business remains outstanding above.

The rally’s resumption needs very little, only to recover and extend through 1137.00. It would be confirmed above 1141.75. Wednesday afternoon’s rally would be rejected back under 1130.00, and a new downleg would be in-play under 1128.00.

Bottom line (My underlying premise)
The econ calendar is relevant, and several high-profile earnings items are due. GS comes pre-open, along with AXP and various other Financials. Then more econ reports come after the open. New highs need not print by Thursday’s close, but they might not print at all if Thursday’s open can’t navigate 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]At the close (How the prior session ended)
Tuesday ended with a sudden spike up out of the afternoon’s narrow no-bias range. It stopped at 1147.00, just 1 point under the as-yet untested Globex high. Coming that close without actually touching the higher highs is pessimism. More so now, being the second time. From a contrarian perspective, it helps to ensure a probe of new highs.

Pattern points (And technical influences)
Tuesday morning’s late bounce in a no-bias environment was designed to absorb the brief selling pressure that preceded the noon hour. Perhaps Tuesday’s late breakout had similar intentions. The Globex open plopped back into the afternoon’s narrow range, and has since held steady. The drop was stopped in its tracks at the afternoon’s 1143.75 bias-up signal, which is now support.

RSIs had diverged negatively before the close. The post-close dip down to 1143.75 was sufficient to satisfy it. But there is room down to 1141.00 before sellers start gaining traction.

RSIs were oversold at Tuesday’s pre-open low. It happened within full view of the intraday crowd, so its retest is almost required. The low was a test of 1126.00-1126.50, and a re-retest the 1130.00 lows. Prematurely abandoning yet another attempt at new highs would be very odd. But another test of the lows would be very likely to break lower.

Bottom line (My underlying premise)
Tuesday’s post-close dip was a delayed reaction to IBM’s earnings. More earnings and and econ reports are due Wednesday morning. Similar reactions would fit nicely into my theme for the New Year’s breakout. Its follow-through should be be relatively shallow, and then reversed back down through December’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.