Market Wrap

[pay]Pattern notes.
Wednesday’s opening 7-point surge had made quick work of probing new highs. Quick work, that is, if ignoring two weeks of having come within ticks of touching the prior high. An 11-point slide made quick work of the open’s quick work, effectively sentencing the balance of the session to range at or under Tuesday’s close.

It was a second consecutive close essentially at 1108.50, as was the open. Anxiousness ahead of Thursday morning’s Jobless Claims data inhibited Wednesday afternoon’s volatility, limiting it mostly to a 3-point range. But the morning’s round-trip wasn’t cut short by the anxiousness – the round-trip was compacted to fit into the available time.

This does two things, the same two things that were done by overnight bounces to 1111.00. Wednesday morning’s surge chipped away at resistance, which would be important if its resistance were ever retested. And it also created room to absorb selling pressure without letting it damage the chart. In fact, Wednesday’s close was essentially unchanged, despite its intraday 11-point plunge.

Wednesday morning’s surge also does a third thing that wasn’t done the previous night. There was unfinished business above, and it was resolved. Furthermore, it was resolved without creating any new business like a gap.

Sellers still didn’t gain traction, so another positive reaction or rally attempt is possible on Thursday’s Jobless Claims. But with no unfinished business above, the potential to begin a new upleg faces a growing burden of proof on buyers. If the range hasn’t broken higher through Thursday’s close, then sellers would start getting a benefit of the doubt.

Indicators and Internals.
Oversold RSIs at Wednesday’s low printed during the noon hour. The timing makes their retest likely but not required. Overbought RSIs at the morning’s high weren’t both overbought simultaneously, so its high also doesn’t require a retest.

Thursday’s opportunities.
The econ calendar isn’t light. Jobless Claims is due before the open, but it won’t be announced alone. It might also affect anticipation for Friday’s report. Then another item is due 30 minutes after the open. Perhaps the afternoon’s volatility will be sucked dry again, but the morning’s action will try its best to get the ball rolling.[/pay]

[pay]Pattern notes.
Tuesday’s rally started from above 1095.00, instead of starting from under it. Instead of targeting 1101.00 where a drop would have been likely, Tuesday’s open leap-frogged over all of that resistance, and extended higher. The next major target was still tested at prior highs up to 1111.75, and it still held. But its test didn’t trigger the reversal that would have been likely by rallying from under 1095.00.

Wednesday’s price levels have changed, but the game remains the same. Rallying from under 1111.00 would target 1113.75-1115.00, where a drop would become likely. The similarity is due buyers failing to gain traction again Tuesday. Monday’s problem was that 1095.00 had held as resistance. Tuesday’s problem was the last hour’s price action being glued to the open’s 1108.50 high. Buyers aren’t gaining traction intraday, so the intraday gains depend upon gapping up.

There’s still time for optimism to get excessive before Friday’s Employment Situation report. There’s also time for a corrective dip that sheds sellers who might otherwise prevent a positive reaction. There’s still time for a lot of fluctuation having nothing to do with Friday’s report, and yet having everything to do with it – the market’s position at Thursday’s close will tell whether Friday’s news can be easily absorbed.

A lot of buying energy has been expended to rally straight up from Friday’s pre-open low. More energy was expended by gapping up Tuesday just to retest prior highs. Extending higher is possible, but it would be living on borrowed time. A pullback would refuel that energy, so long as the pullback wasn’t so deep that sellers gained traction.

Indicators and Internals.
RSIs were overbought during the formation of Tuesday’s high, 1-minute less so, at least enough not to require its retest. But 3-minute RSIs throughout the day did reflect a distinct tilt towards buying pressure.

Wednesday’s opportunities.
The flip side to “Buyers Ain’t Got Traction” is that sellers have none, either. There’s room down to 1102.50-1103.50 before they start gaining any. So, also similar to Tuesday, buyers will continue getting a benefit of the doubt Wednesday so long as the open isn’t gapping down too low. Meanwhile, a session-long rally would be signaled if the open gaps up enough, above 1111.00. Regardless, subdued price action is likely before the afternoon’s Beige Book reaction.[/pay]

[pay]Pattern notes.
It’s easy making lemonade from lemons, but not without the lemons. Sellers were marginalized by failing to gap down under 1086.00. It was tested into the noon hour, but that was the wrong timing to gain traction. Monday was an “inside day” contained within Friday’s range, and no support was broken.

Buyers didn’t accomplish anything either. They can’t even claim to have prevented the decline’s resumption – that was sellers’ fault (as described above). Gradually rising bottoms through the afternoon did finally trigger a squeeze from 1088.00 back up to the morning’s 1096.50 high. But the morning’s high held as resistance, so buyers gained no traction for their efforts.

1095.00 held tests again as resistance. When the squeeze didn’t stick, the last half-hour’s gain was retraced entirely back down to 1092.00, and out of position to easily re-try Sunday night’s rally attempt. As with Friday’s close, a rally can still be attempted, but probably not a durable one, not originating from under 1095.00.

No lemons, no lemonade. Somehow this still manages to taste like lemons anyway. Trending is difficult to start from a standing stop, or from low liquidity. Monday’s participation was no doubt impaired by more than a few four-day holiday weekends. That won’t be a factor Tuesday, making early volatility likely.

Indicators and Internals.
RSIs accompnaying the afternoon’s highs were overbought, but they were lower highs that don’t offer any pullback protection. Positive divergences at the morning’s low indicated that the selling pressure had ended. There is no unfinished technical business.

Tuesday’s opportunities.
Monday’s morning and afternoon highs each touched 1096.50. The interim consolidation was sloped upward Sellers start gaining traction in this pattern under 1090.00, and extending under 1086.00 would target 1078.75. Buyers would start gaining tentative traction back above 1095.50, probably targeting 1101.00, but possibly no more than 998.50, or less. A lifeless open is already unlikely due to increased participation. That’s all but assured by three econ reports coming simultaneously 30 minutes after the open, at least two of which are high-profile.[/pay]

[pay]Pattern notes.
The weekend edition of Trading Plan doesn’t address the bigger picture until first dissecting Friday’s price action. But Friday’s price action is the bigger picture. Nov 19-20’s drop had tested the prior week’s lows, and the test had held those lows in such a way that predicted a bounce back to the highs. That same setup had predicted the bounce would fail. And not just fail to extend higher, but then produce a new downleg.

This first chart puts Friday’s session into a perspective. Not the perspective – a perspective that reveals what just happened in a way that can tell us what may happen next.

The yellow highlighted area identifies the two-week trading range. The gaps and their follow-through within the range reflect both disagreement and agreement. A widely agreed to valuation range has contained sudden shifts in perception. Friday’s gap down was a shock, but it wasn’t out of the ordinary. The probe under the range was new. The lower-end of the range had already been tested and retested to establish it as valid support. A third test was overkill.

This second chart shows the range only. The pink highlight is the range’s 1086.00 lower-end whose redundant testing already established it as support. Friday’s test ultimately held again. A lot of buying pressure was expended in the process, but it wasn’t productive. Friday’s buying pressure was expended by testing the 1095.00 dividing line, highlighted red.

Prior dips left pent-up buying pressure to produce a “recovery” to the range’s upper-end. This dip left outstanding Friday’s opening gap down at 1078.75 to attract price lower. There’s also a gap outstanding back up to Wednesday’s 1109.00 close, but its retest isn’t required since Friday’s open gapped down under Wednesday’s lows. It could still be attacked, as shown in the next chart.

Let’s take another look at the same range, while also including Globex action. The third chart includes Thanksgiving’s plunge down to 1082.75. Friday’s opening gap down to 1078.75 wasn’t the plunge, after all. It is circled red on the chart, and its eventual retest all but assures yet another probe under the range’s lower-end. Another probe would put into play a retest of the 1067.00 overnight low. Failing to hold support there would confirm a downleg is underway.

That’s actually the bullish scenario – get on with retesting Friday’s lows, before another round of impatient buying. The bearish scenario would rally first. More important than filling the gap back up to 1109.00, is to retrace 61.8% of the trading range at 1101.00 (circled blue). A close above 1102.25 would suggest that buyers were gaining traction, confirmed above 1107.75. Rejecting the bounce in order to close back under 1095.00 would put into play a retest of Friday’s lows, on the way to much lower lows.

Regardless of the next leg’s direction, its slope is likely to be steep and its production substantial. No longer able to appear suddenly after ranging sideways for so long, the next leg is also likely to last for some time.

Indicators and Internals.
RSIs were simultaneously overbought at Friday’s 11:00am high. They weren’t improving, and they were no more overbought than they were oversold at the 2:45am low. The abbreviated session undermines the 11:00am timing’s credibility. So, there isn’t really any unfinished technical business in either direction.

Monday’s opportunities.
The econ calendar isn’t busy, but an item is due after the open. Unless the open is gapping down under 1086.00 on the way to 1078.75, a test of 1101.00 is likely. Failing to extend it higher by 11:30 could see the decline resuming in the afternoon. Gapping down under a relevant price level without gaining traction through a relevant timing window would stand up against the odds and suggest yet another attack on fresh highs is coming by week’s end.[/pay]

Please have a safe and happy Thanksgiving!

[pay]Pattern notes.
The absence of pre-opening weakness made the market likelier to retest prior highs. And that’s essentially how the session transpired – likelier to retest prior highs. The likelihood alone was enough for two tries to come close. The 1111.25 pre-open high came close to retesting the 1112.00 prior high. And the cash session’s two tests of 1110.00 stopped short of touching the pre-open high.

Both the morning and afternoon bias parameters were still being tested at their timing windows. The 1107.00 bias-up signal at 10:15, and the 1106.50 bias-down signal at 1:20. Each invoked a grace period, which neither exploited.

The unusually heavy econ calendar triggered pre-open volatility, but not intraday. The unusual news of the Dollar’s steep drop pushed S&Ps higher only grudgingly. The day before a holiday is similar to Fridays, being difficult to attract sponsorship for trending. Nonetheless, Wednesday’s session did trade exclusively in positive territory and above the prior day’s highs.

As goes pre-Thanksgiving, often so goes post-Thanksgiving. I wouldn’t expect any fireworks Friday without some sort of news. Wednesday’s ho-hum reaction to the Dollar suggests that even news won’t light the fuse.

Indicators and Internals.
The morning’s no-bias environment triggered while holding a test of the bias-up signal. Its test was ongoing at 10:30, helping the session to avoid testing the 1099.00 bias-down signal. But this is an objective whose test remains outstanding.

Friday’s opportunities.
Wednesday’s close has deposited price at the doorstep of probing prior highs. Assuming that sellers remain marginalized, Friday’s session should continue firming to finally probe prior highs above 1112.00, perhaps up to 1115.00. Assuming that new sponsorship doesn’t materialize, the probe of prior highs should be rejected. The shortened session probably won’t allow a rejection to be very obvious. Opening weakness has room down to 1105.00-1107.00 without letting sellers gain traction. (I’ll update on Thanksgiving as price action merits it.)

News: We’ll be testing an upgraded version of the chartroom’s conference software, sometime during the week of Dec 14-18 (probably that Tuesday). This will resolve any incompatibility issues caused by Windows 7 and Apple Mac.

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