Market Wrap

[pay]Pattern notes.
Except for the open’s plunge to 1095.00, Tuesday’s cash didn’t cover any new ground. The overnight range had bounced between the 1099.00–1107.00 bias signals. And so did the cash session, once it had recovered 1099.00. In fact, the session essentially ended unchanged from Monday’s close.

The plunge to 1095.00 didn’t leave any unfinished business below, so it doesn’t require a retest. Its retest probably wouldn’t be a retest, but a new downleg. Any bounce off of 1095.00 was likely to be only obligatory, and doomed to failure from wherever it might peak.

Although the entire dip under 1099.00 was recovered, the buying pressure was wasted if it didn’t gain traction. Closing above 1105.00-1107.00 Tuesday would have meant buyers were gaining traction. Tuesday’s close couldn’t even hold above the morning’s 1105.00 high.

The whole bounce since Friday’s ineffectual pessimism is only obligatory, so it’s just a question of timing for a drop back down to (and through) last week’s 1083.50 low. Meanwhile, Monday’s test of last Monday’s pivotal high (the 1111.00 high prior to the 1112.00 actual high) still makes the actual high’s retest likely, first. And its retest is expected, until a downleg gets underway. There is limited time to produce either leg this week, let alone to reject a rally.

Indicators and Internals.
Tuesday’s bottom was easily predicted by the RSI action there. The last three 3-minute bars into the low were accompanied by RSI improving off of oversold conditions (see the lower-left of the nearby chart). The 1-minute RSI had already stopped deteriorating, and its recovery action confirmed. No other business was left unfinished.

Wednesday’s opportunities.
A break lower Wednesday under 1099.00 would signal a move underway back down to last week’s 1083.50 low. There’s a risk of sliding lower through the morning if 1105.00 isn’t recovered. The alternative – i.e simply not breaking lower – is likely to gravitate higher and eventually test 1112.00. Its path would be unpredictable unless 1107.00 is quickly recovered. Another big news day could attempt to trend both ways very early. But liquidity will evaporate noticeably by the noon hour, and volatility could disappear after the 1:00 Treasury auction.[/pay]

[pay]Pattern notes.
Monday’s gap up extended 9 points higher. Most of it was returned by noon, enough that an afternoon reversal would have been credible. The afternoon returned the rest of the post-open gains, along with an extra point, and still didn’t extend down. The market refused both opportunities to decline more than just within its own range. The selling did not damage the chart, and buyers were refueled.

Falling 8-9 points off the session high, without damaging to the chart. That’s tricky. Now comes the really tricky part: resuming the rally. Resistance at 1105.00-1107.00 isn’t going to give way easily, probably not without gapping above it. The gap back to last Wednesday’s high was filled, neutralizing its attraction to higher prices. Last Monday’s 1111.00 pivotal high was pierced. That’s the high prior to the actual high, which all but requires a test of the 1112.00 actual high, up to at least 1115.00.

Alternatively, snapping back up from initial weakness would help to kick start a recovery leg. That’s tricky because initial weakness would threaten 1099.00-1100.00, where sellers could gain traction. A drop would target the gap back to Friday’s ~1090.00 close, where any support would be brief.

Indicators and Internals.
No unfinished business remained outstanding at Monday’s close.

Tuesday’s opportunities.
The econ calendar is remarkably busy. The steady sprinkle of news has been helpful to the rally. But not so much during deluges. And Tuesday’s calendar is a flood. Initial trending can’t be taken for granted until 10:15. Even if it could, there’s the 2:00 FOMC Minutes to restart things.[/pay]

[pay]Pattern notes.
Friday’s open gapped down, spent the entire session in negative territory, and probed Thursday’s prior low. That’s pessimism. But Friday’s session recovered to end back above Thursday’s close. That’s ineffectual. Ineffectual pessimism… where have we heard that one before? Oh, right, from me, last Tuesday and Wednesday. Will this instance be any less ineffectual?

Monday’s gap up had already fulfilled buying pressure up to the 1105.00-1107.00 target. But sellers don’t automatically gain traction when buyers lose it. Both Tuesday and Wednesday’s ineffectual pessimism sessions were still in position to attempt a rally. A rally attempt would have refueled sellers and resolved down anyway, but Thursday’s opening drop didn’t wait.

Friday’s ineffectual pessimism is no less likely than it was Tuesday and Wednesday to produce a rally. And it is as unlikely to extend down anyway. Thursday’s open overcame the odds by gapping down under prior lows, the only way a gap can attract more selling pressure than it is expending. So, gapping down Monday under 1086.00 would give sellers traction. If normality returns, then a rally triggered above 1095.00 would target the gap back to Wednesday’s 1108.00 close.

The bigger picture.
The prior week’s reaction low was 1085.00-1086.00, which held as support Thursday and Friday. It was already tested as support the prior Thursday, redundancy that eventually chips away at its support. The first bounce it produced could have extended higher. The second bounce was probably only obligatory and temporary.

Support at 1085.00-1086.00 has been chipped away sufficiently for its break to produce a productive downleg targeting 1064.00-1067.00. That could end a correction and launch a new rally leg, or its break would signal that a much more dramatic downleg was underway.

Sellers might refuel first, whether by filling the gap back to last Wednesday’s 1108.00 close, or by also probing new highs above 1112.00. That’s where last Tuesday and Wednesday’s ineffectual pessimism was supposed to have led. Friday’s ineffectual pessimism keeps the door open to some sort of rally attempt. Gapping down Monday would all but shut that door.

Indicators and Internals.
Friday afternoon’s high was a retest of the opening surge’s 1094.25 1092.75 peak, whose overbought RSIs had made it a likely objective. Its retest was not required, since the setup happened during the opening 15 minutes of volatility. Oversold RSIs at the 1083.50 pre-open low were the result of a spike down, so it isn’t even likely to be retested – at least, not due to the technicals.

Monday’s opportunities.
Expiration remains influential through the following Monday morning, which should hold the 1086.00-1095.00 range if the open doesn’t immediately break either end. The econ calendar gets off to a slow start. Then the deluge begins, as a week’s worth of reports are crammed into two or three days. The rally has tended to feed on econ reports, but it has also tended to detour when the news flow was heavy. Seasonal holiday bullishness could become obscured by the multiple reports and their effects on price action. [/pay]

[pay]Pattern notes.
The equilibrium at 1105.00-1107.00 gave us two failed trending attempts. Both tried trending down, and both tries were retraced. There was no rally attempt, which was likely but not required. Still, the next one should have been up. Its resolution would have been down anyway, after probing Monday’s 1112.00 high by at least 3 points.

Thursday’s gap down under 1101.00 was the only way to break free from the equilibrium. It was being presumed throughout the week that 1105.00-1107.00 was a major target. That has moved from opinion to fact.

Does that prevent probing Monday’s high before the next downleg gets underway? Perhaps Tuesday and Wednesday’s ineffectual pessimism were the next best thing to a failed rally. My templates don’t allow for it, but this would leave no unfinished business above, such as a retest of Monday’s 1112.00 high. Its business may be unfinished, but it’s not serious enough to prevent the next downleg. Still, filling the gap back to Wednesday’s 1108.00 close would have to include a retest of 1112.00.

Perhaps a rally attempt was subverted by expiration’s influences. Those same influences could also subvert a retest of Thursday’s 1086.50 low. Its retest is likelier than the retest of Monday’s high, because Thursday’s open signaled a session-long decline. The last hour should have printed new session lows. When it doesn’t – unless Thursday’s session is proved to have been an anomaly – the next session tends to get that done quickly.

Indicators and Internals.
A positive divergence at Thursday morning’s low identified the session bottom. Its product was a little slow in extending. Very slow, and hardly extended considering all the time available. So it is interesting that RSIs left no unfinished business above to inhibit a decline.

Friday’s opportunities.
A bounce could have probed 1094.00 by up to 1 point if it intended to refuel sellers for retesting Thursday’s low. The bounce did probe 1094.00 by 1 point, but too late for refueled sellers to reverse down. That could happen overnight, or be well on its way. Fresh lows that recover above 1087.00-1088.00 through the open would end the downleg. Only attacking the lows and not recovering 1087.00-1088.00 would point down sharply through the morning.

To prove that Thursday’s drop was an anomaly, Friday’s open must gap up and recover 1101.00-1103.00. That’s no small feat, and all the less likely on expiration. A flat or mostly unchanged open and narrowly ranging day would be a normal expiration. A volatile open should prevent that.[/pay]

[pay]Pattern notes.
You’ve heard “two wrongs don’t make a right”? Well, two ineffectual pessimisms don’t make effective optimism. But it might seem like it for awhile.

Wednesday was the second consecutive session spent largely probing lower lows, without sellers gaining traction for their efforts. In both cases, the intraday price action ended with buyers reasserting themselves. All that meant for Tuesday night was brief follow-through to the unmet intraday targets. Wednesday night doesn’t have that luxury, since no upside targets were established intraday.

It’s still sellers that have had – and flubbed – more opportunities to gain traction. It’s still buyers that have yet to benefit from Monday’s equilibrium close at the rally ‘s next target. But now it is sellers that have chipped away at their own support, while buyers haven’t chipped away at their resistance.

This means that if a rally is finally attempted Thursday, regardless of whether it is retraced intraday, it is likely to be false. And a rally is likely to be attempted – likelier, following another session of ineffectual pessimism. A gap down under all of the past two sessions’ lows, essentially under 1101.00 would give sellers control. Otherwise, Monday’s 1112.00 high should be broken at Thursday’s open on the way to 1115.00 and 1118.00.

The 1105.00-1107.00 area’s attraction and Friday’s impending expiration can be counted on to try interrupting the flow, so keep this in mind when establishing positions and their stops.

Indicators and Internals.
1-minute RSI was curiously indifferent to Wednesday’s late rally. The buying pressure is no more or less valid for it, but there is no unfinished business, either.

Thursday’s opportunities.
Thursday’s session should be the session that Wednesday’s session was not. A gap up that attracts buyers, extends higher, and then becomes vulnerable both to peaking and to reversing down. As much time as has been spent ranging sideways, and with Friday’s expiration wildcard only getting wilder, I’m not concerned with a reversal’s timing. But closing at a new relative high would make a reversal down more difficult on Friday. Watch the econ calendar, which has a steady flow of high-profile items through the open. [/pay]