Market Wrap

[pay]Pattern notes.
Tuesday’s last-minute low tested 1055.50. This level’s significance is that it was the reaction low when 10:00’s econ reports reversed the new session high. This bearish setup could have been undermined by closing above 1059.25, which was avoided, so there’s nothing bullish about it. But closing under 1055.25 would have confirmed it.

Futures did close 1 point below 1055.25. It’s not the same clarity, despite remaining below it well past the Globex open. Plenty can happen overnight, and the post-close excess selling pressure does risk there being too much pessimism to be fulfilled.

Tuesday’s only requirement was to expand the trading range and then to hold tests of its expanded range. The upper-end was above expectations. Its initial reaction created more violence that needed to be absorbed. So, a probe under the range’s lower-end was pushed onto Wednesday’s schedule (unless Wednesday’s open gaps up above Tuesday afternoon’s 1061.00 high).

A close under the 1052.25 would have confirmed sellers retained control. This is still targeted from Tuesday morning’s bias setup. If its test overnight produces a recovery, then sellers would be marginalized again. Otherwise, a bigger downleg should be underway soon.

Indicators and Internals.
RSIs were unwilling to extend into either overbought or oversold territory Tuesday, leaving no unfinished business to attract price higher or lower.

Wednesday’s opportunities.
Similar to Sunday night, neutralizing unfinished business below at 1052.25 could lead to a sizable rally intraday. Gapping up Wednesday above Tuesday afternoon’s 1061.00 high would trigger a session-long rally regardless of whether overnight action probes lower lows. Otherwise, Wednesday’s open is likelier to gap down or drop sharply so long as overnight bounces hold any test of the 1057.00-1057.50 area.

Don’t forget that we’re doing the weekly stock review mid-morning Wednesday. More information is at this link.[/pay]

[pay]Pattern notes.
The mice did play Monday, taking advantage of the session’s reduced participation. This exacerbated a perfect storm that neutralized selling pressure and triggered uying pressure. But, it’s not clear whether the storm would have arisen at all otherwise.

Friday’s bias-down rally was retraced Sunday night to neutralize that objective, and Friday’s 1036.00 low was retested while RSIs diverged positively to trigger a bounce. Had this happened Monday morning, then the slower day would have inhibited a decline, and prompting a bounce back to the range’s 1049.00 upper-end.

The “perfect storm” was created by altering the timing. This allowed a third factor: opening strength. Not just opening strength that would have faced the same fate as opening weakness, but opening strength with two tailwinds (neutralized business below, and upward momentum into the open). Thin volume exacerbated the output.

Monday’s optimism was not excessive for its inputs. But its inputs weren’t representative of full participation. Its rally can’t be labeled as excessive optimism, but neither was it accumulation.

Closing under 1052.25 is the difference between sellers retaining the traction of last week’s drop, or losing it. Even then, a close above 1062.25 would be needed to signal buyers had gained traction. Anything in between could still be reconciled through the following session’s open. Regardless, not extending higher Tuesday – and maintaining the gain on a closing basis – would suggest that sellers were regrouping for another attempt at sealing a top.

Indicators and Internals.
Numerous setups overnight and Monday morning were predictive. A mid-afternoon setup also identified a brief bounce. But no business was left outstanding to attract price one way or the other Tuesday. An 3-minute RSI avoided any buying or selling pressure all afternoon, so another signal might not come very soon Tuesday.

Tuesday’s opportunities.
After Monday’s blank econ calendar, things do get interesting. The session’s first trending effort should be taken with a grain of salt, considering the levels being tested and recovered (or not), and the timing of news. I’ll update again after midnight if price action merits it.[/pay]

[pay]Pattern notes.
Friday morning’s price action didn’t venture from the overnight range. And that range didn’t venture from the range in place since Thursday morning’s steep drop. That steep drop was actually an extension from Wednesday afternoon’s steep drop. So, in 24 hours, there had been no refutation of a 3-hour, 32-point plunge.

Friday’s noon hour did start out with this message in mind, dipping 4-5 points under prior lows. A recovery at this stage would refute both last week’s plunge, and Friday’s lower low. So, how’s that going?

The noon hour low remained depressed long enough to signal bias-down, but a rally emerged anyway. That would seem on its face to be bullish, but the rally peaked upon testing Thursday morning’s low as resistance. Perhaps this leg’s intention was to chip away at resistance for now, and break through it more easily later. Then it would have been helpful to close solidly above Friday’s lows. But Friday’s lows were still being tested at the close.

The drop’s initial 1039.00-1041.00 target did hold, but only after a second day did of testing chipped away at its support. Since Friday’s lows were still being tested, sellers gained no new traction. But they already have traction, the burden of proof is on buyers.

Indicators and Internals.
Friday’s intraday price action responded to several technical setups. None left outstanding any unfinished business either above or below.

Monday’s opportunities.
Friday afternoon’s rally originated during a bias-down environment, requiring its complete retracement. It was retraced back down to the 1039.25 bias-down signal, which can suffice to retrace a bias-down rally. But its 1:20 print is often retraced, too, which would be back down to 1037.50.

Its retest Monday morning could produce a bounce, since the Yom Kippur holiday slowdown will make trending difficult, and no econ report is due. A gap up that holds Friday afternoon’s ~1045.00 high would be likely to drop back down to 1037.50. A gap up or immediate recovery above 1045.00 could trigger a session-long rally, which thin volume could either exacerbate or undermine. [/pay]

[pay]Pattern notes.
The steep slide from Wednesday afternoon’s high reflects pessimism. The question is whether it is excessive pessimism. If the drop is overdone to the downside, then it is vulnerable to getting squeezed before the weekend’s illiquidity.

Thursday afternoon’s new lows were recovered back into the day’s earlier range. But no higher. The 8-point gain wasn’t small, but it wasn’t productive, and it wasn’t a squeeze. A productive gain would have exceeded the 1049.00 mid-day high. A short-squeeze would have reached at least 1052.00.

After so much pessimism since Wednesday’s high – the relentless slide, Thursday’s mid-day extended narrow ranging – the only reaction was noise within the range. And rather than recover to close above prior highs where buyers could gain traction, prior highs held as resistance to refuel sellers.

Indicators and Internals.
No technical situations were left unfulfilled after the cash session.

Friday’s opportunities.
Thursday’s ranging is unlikely to launch another rally effort, but it could. Even then, the base is too unstable to launch a durable rally. The weekend’s illiquidity won’t improve much Monday during observation of the Yom Kippur holiday. This being a Friday, a morning bias-up signal should persist through the noon hour, increasing the difficulty for resuming the decline.

Resuming the decline at Friday’s open would be more credible. Thursday’s low bounced from simply touching the 1039.00-1041.00 target area’s upper-end. That optimism suggests the range’s lower-end will be tested, too. Maintaining its break would point down sharply intraday. The open’s initial trending will be tenuous, since Friday’s econ calendar is chock-full of high-profile items whose announcements are staggered.[/pay]

[pay]Pattern notes.
Tuesday’s ineffectual optimism didn’t preclude the market from probing higher highs. It just warned that probes above prior highs would likely fail. So, overnight highs reversed down from 1070’50 to 1062.25. And the afternoon’s FOMC reaction up to 1075.75 was rejected down to 1055.25.

That last step was a doozy. When the pullback was only 5 points off its high, a close under 1066.00 would have all but ensured the next phase is down. Then S&Ps slid 15 points. Who knew? (I was ready to throw in the towel at 1062.00)

Sellers may have bitten off more than they could chew, undermining their own intentions. Left outstanding, that pent-up selling pressure would have helped it bleed into Thursday. Instead, the extended drop was borrowed on account, and Thursday need to pay it back.

Paying it back would just delay the game. Invalidating it would be a game changer. Wednesday’s last downleg originated at 1064.50, and immediately recovering it at Thursday’s open would reject the interim drop as if it never happened. A bounce actually has room up to 1065.25 just as noise around 1064.50, so anything shallower would be bearish. Even then, buyers don’t even begin to gain traction under 1068.00.

New selling sponsorship could arrive when the bounce is being retraced. Or it could arrive in time to force a gap down maintained under 1052.00. Any other scenario won’t yet tell us whether the next phase is some sort of downleg – corrective, or otherwise –  or if it’s just more ranging sideways.

Indicators and Internals.
Both 1-minute and 3-minute RSIs were oversold at new lows with five minutes remaining until the cash session close. This was too late for the setup to doom any bounce to failure. Anyway, 1-minute RSI diverged positively on a lower low with two minutes remaining. That’s also too late to be predictive.

Thursday’s opportunities.
Econ reports appear both before and after Thursday’s open. They’re both already high-profile, but their timing adds to their influence on price action. Opening strength in reaction to the pre-open Jobless Claims would be credible if it cleared the bounce limit described above. Home Sales could knock things back down. As for the inverse, there’s not a lot of room for a false break lower, even if retraced substantially, without leaving outstanding a gap open below the market. [/pay]