Market Wrap

[pay]Pattern notes.
Wednesday morning’s 1111.75 high stopped 1 tick short of touching the overnight high. But that was enough to probe prior intraday highs, and the prior highs held. The prior highs held their probe, once again closing back under 1106.50-1107.50.

This follows several consecutive sessions of gaining no ground intraday despite gapping up. In fact, Wednesday’s close was under Monday’s 1108.50 high close, after probing Monday’s intraday high. At least one interim session developed under Monday’s high – actually, just one session, Tuesday – forming a “Gotcha!” setup.

The setup is not ideal, since the Dec 4 actual high wasn’t also probed. It’s enough to predict an immediate drop at Thursday’s open, but an immediate drop at Thursday’s open would be expected to extend down sharply.

Meanwhile, Wednesday’s session developed under Dec 4’s prior high. So a probe of Dec 4’s 1114.25 high, and then a close back under 1108.50, would also form a Gotcha. In its ideal form.

Indicators and Internals.
3-minute RSI suggests sellers paced themselves well during Wednesday afternoon’s decline. Flirting with oversold territory, but never probing it, while continuing to decline – this doesn’t leave unfinished business below, but there’s no near-term opportunity to diverge positively.

Thursday’s opportunities.
The trick to forming a top is trapping buyers. It’s a trick because it involves letting them get into position to gain traction. So the first part of a top resembles a breakout. You know what else resembles a breakout? A breakout. The econ calendar seems tailor-made for just such a reversal. Recovering 1109.25 through a relevant timing window would make a rally credible until proved otherwise. Sellers would start regaining traction by ejecting any opening gain, or breaking under Wednesday’s lows.[/pay]

PROGRAMMING NOTE: We tested the new chartroom platform Wednesday, and will continue testing it Thursday. Assuming no surprises, it will be the default destination beginning Saturday. In that case, I will announce a time to meet over the weekend to get acquainted with its controls. If you’re using Windows 7 or Apple Mac, please try accessing the room now (at this link) to confirm its compatibility.

[pay]Pattern notes.
Monday’s close above 1106.50-1107.50 could have been a breakout of the five-week trading range. But it was disqualified by the afternoon’s narrow range. That was already known, but it was underscored by Tuesday’s gap down back under 1106.50-1107.50. This action also predicted Tuesday’s close would be under 1106.50-1107.50.

This confirms the ongoing pattern isn’t accumulative. It was underscored by the intraday bounce peaking after filling the gap back to Monday’s close. In the first instance, a probe of resistance wasn’t recovered through the close. In the second instance, unfinished business was neutralized first.

All of this follows the characteristic common among Thursday, Friday and Monday’s sessions. Their opening gaps up each ended the day without gaining any traction. When price rises anyway, it is an accident waiting to happen. When it happens, the week-long bounce is should be retraced quickly. Regardless, the accident wasn’t likely to happen Tuesday.

This seemed dubious when Monday’s low was probed, but Tuesday’s last-minute 5-point bounce did retrace it. Barely. The drop may have been exacerbated by news coming from the fluid healthcare legislation process – Tuesday’s peak and drop seemed in lock-step with the news. If so, then Wednesday’s open should immediately recover much more lost ground. Otherwise, there’s now room down to 1099.00 before sellers gain traction.

Indicators and Internals.
RSIs weren’t at all shy about getting overbought or oversold Tuesday. Overbought RSIs at the morning’s 1109.50 high make its retest likely. Oversold RSIs at the last-minute low don’t require a retest, since they were the product of a retest. But a positive divergence on their retest would be interesting as a buy signal, and even more interesting if ignored.

Wednesday’s opportunities.
Three econ reports due simultaneously before the open. A volatile open would help to trigger morning trending. If 1106.00 is part of the equation, then testing it as support from above after an overnight rally would be bullish – it that overnight rally had not already retested Tuesday’s 1109.50 high. Waiting until the open before attacking 1106.00 would be likelier to reverse down. A break maintained under 1099.00 would give sellers traction, but how much traction can they get before the market becomes paralyzed by anxiousness ahead of the afternoon’s FOMC news. [/pay]

[pay]Pattern notes.
Monday’s last half hour. Its afternoon bias environment lapse. The morning’s bias timing window. Each of these periods was testing Monday’s 1108.75 opening gap, within 1-2 ticks. This isn’t accumulation. It’s hardly fluctuation. It’s the same principle as Friday’s gap up and sideways range, and Thursday’s. Price can still rise, but buyers aren’t gaining traction. It is an accident waiting to happen.

Nevertheless, Sunday night’s 1113.00 high is still likely to be retested. Likelier, since sellers never gained traction intraday, not for lack of trying. Despite dumping a lot of ballast, Monday’s post-open price action hardly behaved as if a breakout were underway above 1106.50-1107.50. Closing above Sunday night’s highs would give the breakout thing another try.

Live by the gap, die by the gap… One caveat to this bounce extending higher is that it can be felled by the same trick that has kept it up. That is, maintaining a gap down under prior highs would leave no unfinished business above. Gapping down under Friday afternoon’s lows would put into play targets below. Monday’s lows can be attacked without sellers gaining traction.

Indicators and Internals.
RSIs largely stayed away from either overbought or oversold boundary Monday afternoon. The 3-minute RSI did become oversold at the afternoon’s low

Tuesday’s opportunities.
The pattern has as much potential to spike up as to gap down. A spike up would be more credible for extending higher to probe Sunday fresh highs up to 1114.75 or 1116.00. A gap down has room to 1100.00-1102.00 before reversing momentum down – probably not for a new downleg, but to attack the 1090.00 area. Trending will be difficult to start, let along sustain, until Wednesday’s FOMC announcment is in the rear view mirror instead of aiming for it at 60 mph. Tuesday’s econ calendar  offers its own incentives, starting out busy, and then adding an item after the noon hour. [/pay]

[pay]Pattern notes.
There’s now a five-week long range defined essentially between 1082.00-1107.00 (green and pink highlights below). Last week offered yet another tour of chipping away at the range’s support, only to recover back to its upper-end.

That’s not entirely accurate. The recovery was a little shallow, actually. Not only was the upper-end missed by about 2 points Friday, it was also under-served in Monday’s attack. This seems like buyers missing an opportunity to break higher, and it is. It also reflects pessimism for sellers lacking patience, which might have let buyers trap themselves upon probing higher highs.

Coupled with Tuesday’s gap down, perhaps Monday’s relatively shallow bounce is why selling pressure failed yet again to break under the range’s lower-end.  It’s not as if there isn’t unfinished business below at 1074.00 and 1062.00 (see chart above).

The prior Friday’s low (red block) was recognized at the time as being unsustainable, and Monday’s bounce only added to pent-up selling pressure. But that became moot when it was probed Tuesday. Its gap down didn’t break the range’s lower-end, and neither did Wednesday’s ranging. Their mirror image was Thursday’s gap up and Friday’s ranging.

This range has just been one case after another of missed opportunity. Missed opportunities aren’t distributed evenly, and anyway it wouldn’t be predictive. The current opportunity is a breakout triggered above 1106.50-1107.50, targeting either 1148.00-1149.00 or 1182.00-1184.00.

Such a breakout attempt could become the most recent missed opportunity – especially if the breakout’s character were explosive, and then also confirmed by a second consecutive higher high. Breaking back under 1096.00 at any time would offer another opportunity for breaking the range’s lower-end. Or to miss.

Indicators and Internals.
RSIs diverged positively simultaneously at Friday morning’s low, offering excellent notice of a bottom. No unfinished business remained outstanding into the weekend.

Monday’s opportunities.
No econ reports are due Monday. The FOMC meeting begins Tuesday amid several news items, and the interest rate decision will come after several more metrics are released on Wednesday. Trending attempted Monday before the news, before the decision, could very well be counter-trend. That is, in the direction opposite to the pattern’s ultimate resolution. And trending is likely to be attempted early.[/pay]

PROGRAMMING NOTE: Don’t forget that next week we’ll be testing the chartroom platform upgrade to resolve Apple Mac and Windows 7 issues. No special instructions are needed.

[pay]Pattern notes.
Thursday’s gap up to 1097.25 surged briefly up to 1101.50, then plunged to 1095.25. This simple opening swing defined the day’s range, which bounced repeatedly from one end to the other. It also defined the day’s character, whose numerous intraday reversals spent almost no time consolidating at one extreme before reversing to the other.

Each intraday leg was a reaction to failed trending. The market never got into position for gaining traction, but the close didn’t even exceed the pre-open high. A gap up and an entire session spent ranging above prior highs, but no traction – i.e. “ineffectual optimism.”

Without any accumulation intraday, there isn’t much support to prevent an opening drop from extending down. But neither was there any distribution at session highs to fight off a rally attempt. This unusual setup is vulnerable to gapping in either direction.

Gapping open from this setup is equally vulnerable to extending in that direction, or to failing, and to reversing more substantially in the opposite direction. Either resolution could be dramatic on a Friday.

Indicators and Internals.
Simultaneously oversold RSIs at the afternoon’s 1094.75 low came too late to required its retest, but its retest is still likelier than not.

Friday’s opportunities.
Thursday’s ineffectual optimism did manage to close above Monday’s prior low. That was a minor accomplishment, but an accomplishment, nonetheless. It might deserve extending higher to 1103.75, and probably will if Friday’s open isn’t already in decline. Gapping down under 1095.00 could constitute that decline, but a high-profile econ report at 9:55 will keep the situation fluid. This being a Friday, the morning’s bias should persist through the noon hour. [/pay]