Market Wrap

[pay]Pattern notes.
Tuesday’s open gapped up, probed prior highs, and spent the entire session in positive territory. It doesn’t get much more optimistic than that. Not without also trending up to close above those prior highs, instead of them holding their test as resistance.

The result is “ineffectual optimism.” No price action accompanying Tuesday’s new high close even probed new highs, but it did probe week-old price action. Ineffectual optimism tells us to be prepared for either an opening drop, or for opening strength to fail. It’s not a sell signal, and it doesn’t preclude further optimism.

New high closes can invite retail buying, buying that might yet gain traction. After all, Tuesday did chip away at some resistance, and there’s no requirement for sellers to suddenly retake control Wednesday at a price they ignored just one day earlier. I would respect a breakout maintained through a relevant timing window, regardless of how it’s probably too late for a new, steeper upleg to begin.

Indicators and Internals.
Both 1-minute and 3-minute technicals have been as subdued as their price action. But they’re still predictive. Tuesday morning’s positive divergence and the noon hour’s negative divergence each reversed the prevailing trend. But no afternoon extremes leaves nothing for the next open to fulfill.

Wednesday’s opportunities.
New highs are not a sell signal, and new highs that print overnight are likelier than not to be retested intraday. Tuesday’s recovered dip was an excellent example of the lengths to which the market will go for this. New highs delayed until after the open are more easily reversed, assuming that technicals are deteriorating.

Overnight weakness under 1061.00-1062.00 could find Wednesday’s open sharply lower. Otherwise, opening weakness need break under only 1064.00 to start pushing back against recent highs. In any case, although FOMC announcements have lost their imapct, anticipation can still paralyze price action.[/pay]

[pay]Pattern notes.
Monday morning’s ranging broke higher into the afternoon’s ranging. The 1061 lower-end of Friday’s range was tested as resistance. The gaps back to Friday’s 1061 futures close and 1062.75 cash session closes were filled and held as resistance.

Good riddance to Monday, and also good riddance (presumably) to the entire expiration influence. Monday’s late-morning surge may have been all about refueling sellers for a retest of the 1051.50 pre-open lows. But Monday’s session was all about resuming Friday’s ranging without either buyers or sellers gaining traction.

One big question yet to be answered is whether the Labor Day rally leg expired with expiration. It could still be replaced by another rally leg, but at a much steeper slope. That option is probably off the table, especially if a steep rally isn’t underway at Tuesday’s open. So, the bigger question is whether the market’s next phase is to range sideways, or else try correcting down.

Unfinished business below Monday’s close may try making the case for sellers. A break under 1046 is still needed to signal momentum reversing down. A close above 1066 would suggest that the rally was resuming.

Indicators and Internals.
Monday’s 3-minute indicators weren’t very useful. But that’s not surprising for a session that was essentially two trading ranges interrupted by a brief surge. That surge wasn’t preceded by any technical setup, making it likelier to be retraced.

Tuesday’s opportunities.
The day’s econ calendar is sparse, so unfinished business should have an impact. Monday’s late-morning surge originated during a bias-down environment, inappropriate timing that requires its complete retracement back down to 1055.50. Extending lower would target a retest of Monday’s pre-open lows. The morning’s 1050.50 bias-down target was never touched, and the delay could extend its test down to 1047. An early recovery above 1061-1062 could run higher, instead.[/pay]

[pay]Pattern notes.
[As announced last week, futures quotes now use a decimal in place of an apostrophe (except for bonds, which I’ll continue quoting in ticks). Any S&P cash quote will be identified in context. Otherwise, all quotes are basis futures.]

Friday’s expiration session was range bound between 1061-1066, centered around Thursday’s narrow late-afternoon 1062-1064 range. The open’s gap up quickly reversed down from 1 point above 1066 to 1 point under 1061. Several more round trips intraday probed or attacked either end of the range. The last hour slid relentlessly after retesting the open’s high. The cash session’s close was contained within 1062-1064, and the futures close extended down to 1061.

Trending-like price action withing a range is often not trending at all, but noise – even when the trending is from one end of the range to the other, and even when it evolves in a very brief time. Ending at a relevant price point such as 1062-1064 also undermines whether trending is in-play. Extending after the cash session close may also seem like trending, but its timing can mean it is the result of anything but that. And by the way, that post-close extension ending at 1061 was another relevant price point.

The afternoon’s price action developed entirely within the morning’s range, and the entire session developed within Thursday’s range. It was an expiration session, which rarely trends. Trending was spotted in another county at the time, sipping “appletinis” with a woman named Constance. Both Constance and the bartender have provided sworn affidavits to this effect.

No part of Friday’s session was trending.

I don’t mean to beat a dead horse, but it’s sort of important at this stage. Thursday’s new trend high was fought back, and Friday’s session barely fought. Nearly two full weeks of trending were stopped cold by expiration. This suggests strongly that expiration and the latest rally leg shared the same sponsorship. One ends the other.

Indicators and Internals.
RSIs diverged negatively into Friday afternoon’s rally back to session highs. The slide back down to the range’s lower-end adequately fulfilled this signal. In fact, both 1-minute and 3-minute RSIs became oversold at the post-close low. The timing of this setup is too late to be predictive.

However, both the opening and closing 15 minutes of price action each trended down. This “Friday Factor” setup is usually followed by similar price action from Monday’s opening tick – which can still gap up first. I would take this with a grain of salt while expiration is still being unwound. But it would normally argue in favor of selling an opening surge back to Friday’s highs.

Monday’s opportunities.
Leading Indicators is the only econ report due, and it is due after the open, timing that can reverse or accelerate any initial trending. Expiration sessions either trend or they range – this one ranged, by the way – and that characteristic tends to repeat Monday morning. Probes beyond either end of the 1061-1066 range are likely to fail. The range’s upper-end is likely to be tested, first.

Breaking through it would target 1078-1079 and would be likely to reverse back into Friday’s range, unless the move extended to close above 1080. Dropping first Monday down to 1047-1049 isn’t likely, not since Friday’s last-minute action wasn’t trending. Anyway, an opening drop would be likely to recover before breaking under 1046, because any lower would give sellers traction. All in good time, but probably not quite yet.[/pay]

[pay]Pattern notes.
The last opportunity to truly recover positive territory Thursday was just before its last half-hour. A quick 2-1/2 point surge was stopped cold, and sent back into what had been an hour-long 1062’00-1064’00 range. Then below it, to 1059’00. But the 1062’00-1064’00 range was recovered into the close.

Ranging so narrowly just before an expiration session tends to foreshadow more of the same into the weekend. Probably not a 3-5 point range, but probably no less frustrating. It’s common with expiration session.

The pattern can be broken by an immediate break under 1058’00 that extends quickly through 1056’00. This would put into play 1050’00-1052’00, and potentially 1037’50 by Monday morning. Simply firming into positive territory would suggest a flat to higher range through the noon hour.

Indicators and Internals.
RSIs diverged negatively into the last half-hour’s initial 2-1/2 point surge. The reaction down was more than sufficient to fulfill the signal. Technicals left no unfinished business at the close.

Friday’s opportunities.
No econ reports are due Friday. The rally has fed on news, either reacting to it favorably, or else quickly absorbing it. Expectations for higher highs Wednesday morning were largely a function of how pre-open news was all but ignored. Expectations for Thursday’s higher highs weren’t abandoned when pessimistic reactions came slowly after pre-open news.

Friday’s open won’t have a similar Wall of Worry to climb. And it won’t have the momentum of rising prices – in addition to being flat, Thursday’s close rejected two steep probes above prior highs. At any other time than expiration, this would be very bearish. Its still might be. But expiration makes a narrow range likelier. [/pay]

[pay]Pattern notes.
After Monday and Tuesday’s sessions, there were fewer possibilities for trending. Whether up or down, the push would need to be dramatic. No more ranging around prior highs, and no more retracing new highs. The open’s gap up reacted down, but never turned negative, and the balance of the session rallied,

Actually, the rally all but stopped with two hours remaining before the close. So the afternoon wishy-washiness hasn’t been overcome entirely. But none of its gain was retraced. If the market intended to decline from Wednesday’s highs, then the last two hours of stagnation were the very definition of prone. Higher highs may be probed only briefly, but they should be probed.

The influence of Friday’s Quadruple-Witch expiration may inhibit intraday trending, so beware of early gains that aren’t maintained through the opening sequence. Extending higher without interruption would next target 1069’25. So long as pullbacks from there were to hold 1066’25, then above 1071’00 would target 1082’00.

A failed opening surge wouldn’t necessarily reverse momentum down – sideways ranging is once again an option. Breaking under Wednesday’s 1058’25 noon hour low at any time would suggest that a corrective dip down to the 1052’00 area was underway. A gap down under 1050’00 would reject all of Wednesday’s gain and reverse momentum down hard. It would actually serve by proxy to reject the week’s entire gain, making a rest of Friday’s 1037’50 close just a formality.

Indicators and Internals.
3-minute RSI barely managed to become overbought Wednesday. Its only two instances were followed quickly by negative divergences. None was well-timed or substantial enough to trigger a reversal, but they do undermine the quality of higher highs since then. And overbought 1-minute RSI has accompanied the higher highs since then. Until an early rally Thursday is maintained past the opening sequence, it would be vulnerable to reversing down. Meanwhile, recovering from an opening dip would compensate for the weak technical situation.

Thursday’s opportunities.
Expiration influences tend to be locked in by Wednesday’s close. And expirations rarely reverse trending underway to new extremes. Sellers could be marginalized through Monday morning unless Thursday’s open rejects recent gains by reversing down under levels defined above. The morning’s econ calendar offers ample opportunity.

PROGRAMMING NOTE: Long ago and far away, previous versions of this blog referenced S&P Cash (SPX), as well as its futures. To easily distinguish between them, I replaced the futures quote’s decimal point with an apostrophe. Since SPX coverage has long been isolated to the Bias-parameters, it may finally be time to bring back the decimal point. Unless this inconveniences anyone, Friday will be the apostrophe’s last day.[/pay]