Market Wrap

[pay]Pattern notes.
Tuesday’s last hour selling stopped 1 point above the afternoon’s 1057.25 prior low. And that was 1 tick above the morning’s low. (The rising lows are defined by the nearby chart’s dotted orange line.) Each interim bounce was relevant, and not just arbitrary noise, having retraced at least 61.8% of the prior drop. In each case, a retest of the prior low is in-play, simply because the trend remains down.

The margin between prior low and subsequent low reflects optimism. Inappropriate optimism, since a bottom requires actually probing under the prior low. Almost no recovery attempt prior to that would be credible. And, as seen Tuesday afternoon, almost no recovery attempted prior to that can succeed.

An exception is to gap up above the interim high. The objective of immediately recovering Tuesday afternoon’s 1065.50 high at Wednesday’s open, would be to probe above its prior high, which is Tuesday morning’s 1069.25 high. This particular interim pattern would target 1071.00, which is near enough to higher prior lows at 1072.00 to also expect its retest before the decline resumes.

Meanwhile, the trend remains down, targeting 1051.00-1054.00 to launch a bigger bounce. That, or else 1051.00 gives way to a much deeper and steeper decline. The decline’s next downleg should be similar in slope and degree compared to Monday’s late-morning plunge.

Indicators and Internals.
RSIs were simultaneously oversold at Tuesday morning’s low, requiring its eventual retest. They were higher lows, predicting a bounce which played out quickly. The bounce has probed a prior high, so it has already been productive.

Wednesday’s opportunities.
The econ calendar promises to keep the market uneasy through the opening sequence. Immediately recovering above 1065.50 would trigger a bounce for refueling sellers. Probing the 1069.00 area before the open would make 1065.50 a sell signal. Otherwise, the trend remains down.[/pay]

[pay]Pattern notes.
Not retracing Monday’s late-morning dive reinforces the dive’s sponsorship. And the late-morning dive needs all the reinforcement it can get. It originated after the morning’s bias window began lapsing, and had already met and held its target before a new window could open.

This timing doesn’t undermine the drop’s credibility – rallies already had the pre-defined purpose of refueling sellers. So the question is whether the drop fulfilled that selling pressure, or if it has instead triggered a new downleg. S&Ps fell 27 points Monday from high to low without the help of a bias window. Does it have sponsorship to fall a single point further?

The various types of support spanning 1063.00, 1065.75, 1066.50 and 1068.00 up to 1068.75. They lived up to their billing as being a rock and a hard place around 1066. Despite the drop’s stealth sponsorship, the burden of proof is on buyers. Four hours of ranging sideways at the lows doesn’t diminish the drop’s credibility – that’s four hours without buyers exploiting sellers’ hesitation.

Indicators and Internals.
There is no unfinished business outstanding from Monday’s technicals. It’s interesting how uninteresting technicals were during the afternoon’s ranging. The last hour’s momentary fresh low never convinced sellers or buyers to step into the fray. The afternoon’s meandering was just noise.

Tueday’s opportunities.
Fresh lows late Monday would have been driven by weak hands, probably extending a little lower Tuesday (e.g. 1054.00) before recovering strongly. Now any interim strength that holds 1071.00.00-1072.00 will more likely resolve down with potential to 1051.00 or 1042.50. Immediately recovering 1075.00 could end the downdrafts for a couple of days, until new sponsorship an be found. Meanwhile, the econ calendar is busy enough, especially considering no news on Monday. [/pay]

[pay]Pattern notes.
Friday’s pattern was exceptional in two ways. First, it showed that sellers can retake control without first retesting an overnight high that was above the prior session’s range. Then it showed that a session-long decline can occur without there being a session-long decline setup.

Opposite outcomes were likely – not setups, just likelihoods. In the chartroom I try to emphasize that likelihoods can have exceptions, which is why they’re only likelihoods. Admittedly, I can stress this to the point of distraction, but it is very often just an asterisk. If exceptions and asterisks come in threes, then there are two possibilities.

– Opening gap. Not just by a couple of ticks or by a couple of points, but beyond a relevant prior high or prior low. Friday’s last three hours ranged sideways, which doesn’t often create pent-up buying or selling pressure. And the ranging was more about pushes off of a central point, and less about moving from one end of the range to the other. Another reaction back to the middle will be considered if the open is a quick move or gap to a relevant prior high or prior low.

– Session-long trending. Friday’s last action was to firm, and the afternoon’s low printed during the last half-hour. My session-long trending setup isn’t in-play, but neither was it in-play Friday. However, Friday’s session trended throughout (defined by the last hour’s new session low, despite being part of a three-hour range), so Monday’s session is equally vulnerable.

Friday morning’s 1075.75 low was being touched again at at the 4:00 cash session close. The sideways trending actually began then at 11:22, so its duration can be defined as almost five hours instead of just three. Note the time stamp, when the morning’s bias-down was about to start lapsing. Sellers are more credible than buyers, despite not maintaining lower lows in the interim, because buyers didn’t exploit that period when sellers didn’t improve their own position.

Thursday refueled sellers up to (and through) the bounce target, those sellers regained position into Friday’s close, and only brittle support lies below. More than a week of ranging off of new highs has failed to resume the rally, threatening to reverse the trend down.

Buyers might yet make another stab at resuming the rally, given all that is at stake here. And given how much proof sellers have delivered already, buyers must be overwhelming if they are to be believed at all.

Indicators and Internals.
RSI will be relevant to assessing the quality of a prior high or prior low’s retest. Friday’s mid-afternoon positive divergence did produce the minimum required 61.8% bounce before probing fresh session lows. Had technicals improved in the interim, then another bounce might have been indicated. Instead, a lower low wouldn’t be required to recover.

Monday’s opportunities.
The relevant prior high and prior low described above are Friday’s noon hour ~1082.00 high above, and Thursday’s ~1070.00 opening low below. An extended bounce would have room up to 1088.00 before considering its purpose to be anything more than refueling sellers, again. Above 1093.50-1094.50 would put into play 1107.00. Under 1068.00-1070.00 would target 1063.00, and then 1054.00. The econ calendar is empty and quarterly earnings aren’t high-profile. [/pay]

[pay]Pattern notes.
Extending Wednesday’s drop Thursday had room to probe a couple of points under 1068.00. Bouncing first had room up to 1088.00. The drop extended down first, and then it bounced up to 1088.00.

But the drop bottomed a couple of points short of 1068.00. Because of that unfinished business below, and for several other reasons, the bounce to 1088.00 should fail. Its first opportunity is at the open. Missing that, its next opportunity wouldn’t appear until the last hour.

Friday afternoon’s rally would have been perfectly predictable had the morning’s drop extended just a couple of points lower. to test 1068.00. It would have been perfectly predictable had it begun prior to probing the lows at all. Perhaps the afternoon rally’s only appropriate characteristic is that it was inappropriately timed – a no-bias rally that also requires the bounce’s retracement.

But there it sits, at the peak of a no-bias rally. The 1088.00 bounce limit is still in the process of being tested, instead of either breaking or being rejected. Friday’s open will need to move aggressively to break free, gapping or spiking beyond support or resistance. Wednesday’s steep drop and Thursday’s recovery don’t make the past week’s range any likelier to break one way or the other. The unfinished business below makes that direction likelier, if not immediately then as a later objective.

Indicators and Internals.
RSIs were both overbought and oversold at key times intraday Thursday. Both buying pressure and selling pressure not only reached extremes repeatedly, but also spent considerable time there. This is not a trending market.

Thursday’s opportunities.
A gap maintained above 1094.50 would be likely to range 3-4 points higher through the noon hour, and possibly through the close. Any lesser opening strength could still attack 1094.50, but probably only to trap longs for fueling another downleg. The least likely scenario is to immediately slide or gap down back to the afternoon rally’s 1081.00 origin. Least likely, that is, but still most appropriate, since the leg’s origin was inappropriately timed, it already fulfilled corrective bounce targets. The only econ report is at 10:00, while the earnings calendar is well underway.[/pay]

[pay]Pattern notes.
You might think there would be a lot of new items to discuss following a 45-minute, 22-point plunge. There really isn’t, not since the plunge was in-line with the pattern’s objectives. No, there wasn’t a call for this – at least, not a plunge – but all the relevant characteristics were already in the market.

– Tuesday afternoon had never justified the morning’s reason for not rejecting the inappropriately timed selling. Perhaps now we know why, to create pent-up buying pressure. Regardless, sellers needed a close under 1091.50 to retain whatever traction they had gained Tuesday. The level’s support was threatened for so long intraday that its break eventually required an accelerated pace. This seems to qualify.

– The morning’s “sudden, steep and substantial surge” had extreme optimism written all over it. If it were a corrective bounce, then its objective was a return to its origin at the 1086.00 open. It was met 15 minutes after the selling accelerated.

– Distribution targets created by the morning’s pattern at 1088.00 and 1084.75 were tested on the way down. Then the retest of Tuesday’s 1082.00 low. Once touched, they also needed to remain broken through the close for sellers to retain that traction. Tuesday’s 1082.00 low, too, for which there was no reason to have revisited it before Wednesday’s open unless the market intended to break lower.

– The low was 1072.50, nearly touching last Tuesday’s “lower prior highs” as support. While this area was representative of the next lower target, it certainly wasn’t foreseen that it would be met so soon. Frankly, last Wednesday’s ~1078.00 low was more likely to produce a bounce, either into the close or afterward, since it was pretty late in the day for an already sizable drop to also break big support.

So, that’s what Thursday comes down to. Was Wednesday’s drop the final chipping away at support needed to reverse the trend down? Not just seal a top, or “doom bounces to failure,” but extend the selling through Thursday morning. Or, perhaps Wednesday morning surge’s extreme optimism neutralized by the afternoon plunge’s excessive pessimism, as evidenced by the last-second dip under last Wednesday’s lows.

Notice the two new highs labeled “1” and “2” in the above chart. Notice the last high “3” originated from below both prior highs. A single leg fell back under the first two highs’ interim low. This setup can have a very bearish resolution. Overt and sustained strength Thursday would invalidate the setup, and probably point higher. Otherwise, the next leg is down.

Indicators and Internals.
3-minute RSI was persistently overbought throughout most of Wednesday morning’s surge, which made sell-off attempts unlikely, or unlikely to succeed. It was persistently oversold during the plunge. Perhaps not immediately, but eventually Wednesday’s low should be retested.

Thursday’s opportunities.
Lower lows at 1068.00 should be visited next, 10 points under Wednesday’s close. This regardless of whether they break into a much deeper and possibly steeply decline, or produce a bigger bounce into the past week’s range. A bigger bounce has room up to 1088.00 before this leg loses its traction and 1068.00 becomes unlikely. The econ calendar and my comments on it are at this link. [/pay]