Market Wrap

[pay]Pattern notes.
It’s a story as old as time (at least, it seems that way)…  Another low-volume gap up, another close under the morning’s high. Price gets higher but buyers don’t gain any traction.

The past several opens were likely to rally, whether or not pulling back first. Now three consecutive higher highs have stretched buyers thinly, but sellers haven’t yet benefited. The opening strategy is likely to shift to selling opening strength, instead of anticipating it.

Half-day sessions are interesting creatures. If trending isn’t obvious at the open, it can still appear by mid-morning and extend into the close. But an early trending attempt is more likely to hold its first test of support or resistance, having expended its energy for the day.

Indicators and Internals.
3-minute RSI was volatile overnight, and ranged widely intraday. But there was no business left unfinished.

Thursday’s opportunities.
The Lotus/IBM webinar platform requires a dial-up connection to be left open throughout the day. Obviously, that’s not an option, so its test was canceled. We may try one more program tomorrow.[/pay]

[pay]Pattern notes.
Monday’s high was being tested as resistance at Tuesday’s close. Buyers once again didn’t gain traction, so there is no assurance of trending up Wednesday. Meanwhile, sellers did not gain traction, as shown by the trendline extending from yesterday’s pivotal and key highs (to either side of the actual high).

This is classic “ineffectual optimism” – Gapping up, probing prior highs and spending the entire session in positive territory, all without extending higher.

The illiquidity can cut both ways, as Newton’s first law of motion remains in effect. If something does spark enough trending to trigger a buy signal, then the path to its target should be uninterrupted.This week’s day-to-day gains aren’t different from the prior bounce. Its intraday rallies also failed to gain traction, and the pattern was also an accident waiting to happen. It did happen, retesting the consolidation at the low, much more dramatically than the rally had developed.

This current instance is so far only retesting prior highs, and not breaking out. So long as this is the case, the eventual retracement will be the beginning of the next downleg. Unfortunately for bulls, low volume does not a breakout make. In other words, higher highs might be probed, but volume probably wouldn’t expand to confirm a breakout underway.

Indicators and Internals.
1-minute RSI probed oversold territory at Tuesday morning’s 1110.50 low,while 3-minute RSI made its own lower lows. Its retest is likely. The 1-minute RSI diverged negatively into the afternoon’s high, which already pushed back. Most interesting, though, was the 3-minute RSI barely threatening to touch overbought or oversold intraday. This reflects the limited participation.

Wednesday’s opportunities.
The morning’s econ reports should offer at least one quick trading opportunity. But volume is already pretty thin, and Tuesday’s action shows how difficult it is to generate sponsorship for trending. Add to the mix that Thursday’s session closes early, for 3-1/2 days. Volatility might all but evaporate before noon Wednesday.[/pay]

[pay]Pattern notes.
Friday’s intraday buyers had been fully absorbed after the open and close both held tests of 1098.00. The only way to extend higher was to gap up. Monday’s open did gap up, and then surged higher to test 1109.00 during the first half-hour. It was still being tested at the close, so buyers again gained no traction.

Unlike Friday’s session, all of the interim action took place above. Monday’s Trading Plan allowed for resolving up from Friday’s range. Resolving up Tuesday would require maintaining a gap up above Monday morning’s 1112.00 high.

Firming but not gapping up would be likely to hold a test of Monday’s highs, and resolve back down. Almost any weakness – whether sliding from the open or gapping down – would indicate that the sponsorship behind Monday morning’s rally had already disappeared (probably expiration related).

The greatest achievement of extending the rally won’t be to probe prior highs. Rather, it might not be much more than just preventing sellers from regaining traction before the 3-1/2 day holiday weekend. If sellers do gain traction Tuesday, exploiting the rubber band being stretched Monday morning, then a great deal of damage could be done by noon Wednesday.

Indicators and Internals.
RSIs created several attractions both higher and lower Monday, but none was left untested.

Tuesday’s opportunities.
News items aren’t very high-profile before Tuesday’s open, but they will be afterward. That’s going to keep the open fluid. Gapping up above Monday’s highs could extend higher at an hyperbolic slope if not pushed back down by 10:00. Almost any other scenario would leave price lower going into the noon hour. [/pay]

[pay]Pattern notes.
A very bearish resolution would be all but assured Monday if not for expiration. Normally, Thursday and Friday’s probes into the prior week’s consolidation (circled red) would be likely to gap down under that consolidation’s lows. Expiration’s influence makes that resolution less reliable.

There is still a vulnerability to gapping down. And despite increasing the distance, Friday afternoon’s rally heightened that vulnerability – having tested the morning’s 1098.00 high, not closing above 1098.00 meant buyers had expended all that energy without gaining traction.

There is a tight window available to launch any trending either way before the 3-1/2 day holiday weekend. The market is closed Thursday afternoon, so any trending not underway by noon Wednesday probably won’t be underway before next week. Sellers would likely be marginalized, but a breakout into a new rally leg might be pushing it.

Indicators and Internals.
Oversold RSIs at Friday morning’s low were never retested. The pattern there formed an Ascending Triangle that has yet to retest its breakout point. Overbought RSIs at the close are dismissed for being influenced by expiration, and not as an expression of opinion.

Monday’s opportunities.
A retest of Thursday night’s bounce that attacked 1103.00 would be targeted if Monday’s open isn’t gapping down. The attack could extend higher if 1103.00 didn’t immediately reject the bounce, or somehow prove the bounce was just more of expiration’s influence. Friday afternoon’s last relative low at 1093.00 printed during the last half-hour, so gapping under it would not signal a session-long decline. But it wouldn’t necessarily recover. A gap to Monday’s ~1089.00 low would be unlikely to sit still through the morning.[/pay]

[pay]Pattern notes.
Expiration’s influence appears to have already clamped down on volatility. After Thursday afternoon’s bias environment lapsed, a small blip-up was quickly retraced. The retracement quickly stopped. And a blip-down of equally small size was retraced, as well.

The afternoon’s choppy narrow ranging had already predicted a difficult close. Noise can be traded, but not when it ranges so narrowly. More important than trending, the challenge became whether the morning’s 1093.50 low would be recovered, or if the close would still be in the process of testing it.

Regardless, it wasn’t recovered – not until a 3-1/2 point surge after the cash session close. Whether sellers lost traction is of secondary importance. The burden of proof was on buyers to regain traction. It’s expiration and anything can happen, but it would have to happen at the open. Otherwise, the prevailing trend down will likely persist into expiration.

Thursday’s 1090.75 low barely filled the gap back to last Tuesday’s close, so it could produce only a temporary obligatory bounce. It should still be probed down to at least 1087.50. And having been delayed until another session, its ultimate test is likely to extend down. In other words, resuming the decline at Friday’s open would essentially resume the decline off of Dec 4’s high.

Indicators and Internals.
Oversold RSIs at the noon hour low didn’t require a retest. The last-minute low came within 1 tick anyway. Since the reaction didn’t recover any relevant ground, the test isn’t considered to have held, and an attraction below the market remains outstanding. It can be rendered moot by gapping up above prior highs.

Friday’s opportunities.
Thursday’s last-minute dip was retraced after probing the afternoon’s 1091.75 bias-down signal, leaving selling pressure to be pent-up overnight. The selling pressure was uncorked, so Friday’s open is likely to be in decline. A gap up Friday above 1098.00 would put a cork back in the bottle. Expiration is unlikely to reject the prior session’s trending. But expiration is also likely to extend any initial trending, whether or not it is the same as the prior trend’s direction.

PROGRAMMING NOTES: The charting platform upgrade experienced difficulty maintaining an ongoing broadcast stream, and its audio was scratchy. We will not be moving to it without resolving these issues. Unfortunately, the Windows 7 and Mac issues persist, so we will test a couple of other platforms next week. Thank you for your patience![/pay]