Market Wrap

[pay]Pattern notes.
The structure of Tuesday’s price action was similar to Monday in a four of important ways. The obvious similarity is that each day probed fresh highs. The two most recent sessions were part of the price rise underway since Sep 3.

Less obvious is that each session entered the noon hour fluctuating narrowly around the prior day’s close. A consensus for extending higher was almost an afterthought. This characteristic is new for the series since Sep 3. And it has suddenly appeared in the two most recent sessions.

That “afterthought” is the third important similarity between the past two sessions. Each of the fresh afternoon highs was shallow, and staled quickly, closing back under a prior high. Monday’s futures close dipped back under Friday’s prior high, and Tuesday’s high was retraced back under the morning’s high. Each of the closes was higher than its predecessor, so sellers haven’t yet retaken control.

The final similarity is shared with several others since recent lows, whose morning action included a dip into negative territory. Prior to this week, the rubber band effect has been used to snap price higher. The refueling tactic is still working intraday, but the past two days’ intraday recoveries no longer extend higher through the close.

None of which is a sell signal (new highs are not a sell signal). Similarly, narrow ranging at the lows into Sep 3 was not a buy signal. But the decline’s slowed pace was easily overcome when trending finally started. Now, the rally’s slowed pace is vulnerable.

Indicators and Internals.
RSIs were overbought at Tuesday’s high. It was within minutes of 3:30, very near the window that can disqualify technical readings. The 3-minute RSI was only nominally overbought, and below earlier RSIs. Clearly overbought RSIs accompanying the high would require that high’s eventual retest. This is because it is weak-handed sellers that tend to step into clearly overbought situations. Overbought situations created by weak hands don’t earn the protection of overbought RSIs. So, while this does undermine a bearish argument, it doesn’t diminish the credibility of an immediate decline gaining traction.

Wednesday’s opportunities.
Until sellers retake control on a closing basis, and so long as fresh highs are probed intraday, each new session has the potential to continue trending upward. The possible character of that trending becomes narrower. After two-three days of lackluster afternoon gains, a dramatic push higher is necessary to extend the rally.

It is interesting that this coincides with Tuesday being the first session to develop entirely above August’s highs. This breakout attempt could attract fresh sponsorship from under the woodwork. Otherwise, it may have already done that just to achieve Tuesday’s close, in which case the bottom could drop out – not necessarily at the open, but into the close. Either way, while not required, this is an inflection point that is vulnerable to steep trending intraday.[/pay]

[pay]Pattern notes.
Monday’s buyers did a lot. None of it was new, but clearly there was a lot of effort involved. The cash session’s open immediately set upon rallying back up to Friday’s close. Two brief afternoon surges attacked and probed Friday’s highs. The latter surge was retraced after the cash session close. Also retraced was the probe above Friday’s high.

Only one pullback intraday could qualify as having dipped under a prior low. It formed a pattern that could have bullish if its pullback weren’t shallow. But it broke higher with without refueling buyers. The buying pressure it did have was fulfilled at the session high.

Gapping down immediately at Tuesday’s open wouldn’t be the most bearish scenario. This path would create a gap back to Monday’s 1045’00 cash session close that would inhibit selling. A break under 1039’00 would probably test 1030’50, where a recovery would be likely. An unlikely gap down under Sunday night’s 1025’50 low would allow a downleg to ignore the gap back to Monday’s close. The bigger concern then would be avoiding a meltdown.

Many hours were spent ranging at Sunday night’s lows under 1031’00. It created a mass whose gravitational pull will try to  attract price back into its orbit. This is the support that would be offered upon breaking under 1039’00, the first re-entry into this range’s orbit. The second approach would more likely slingshot the trajectory into a new downleg. The rally’s health depends upon getting this retest out of the way sooner rather than later, or never even threatening the retest at all.

Indicators and Internals.
RSIs repeatedly probed overbought territory during Monday’s rally. Each high that required a retst was indeed retested. And each negative divergence did produce a dip. Curiously, RSIs avoided overbought territory when Friday’s prior high was actually probed. This advance notice warned that the close wouldn’t hold the gain, and it didn’t. It also doesn’t form a solid base for launching higher highs.

Tuesday’s opportunities.
The timing of tomorrow’s econ reports is interesting. The immediate concern is how Tuesday’s open incorporates Monday’s late strength. Extending it higher without delay could be self-fulfilling – the speculative bubble would become dangerously inflated, but extreme optimism isn’t necessarily excessive. Gapping down would create a safety net. But ranging sideways before either extending higher or reversing down would be likely to extend in that direction through the morning.[/pay]

[pay]Pattern notes.
Both buyers and sellers accomplished something, and neither accomplished much. That may be acceptable for sellers. Upon entering Friday at new highs, their most reasonable hope is just to avoid a a runaway rally into the close. Almost any gain would have created a buffer to absorb selling Monday. That buffer wasn’t created, and a runaway rally was avoided. Sellers didn’t recapture any ground, but neither did buyers. Buyers had the advantage, so sellers won the day by default.

None of which matters if sellers don’t exploit their minor victory on Monday. So long as any strength is tempered or brief, then August’s highs are still being tested as resistance, and not broken. Friday’s highs don’t require a retest, although a retest wouldn’t be inappropriate. A credible downleg could start as easily from a failed new high as it could from a break under support.

A break higher could extend intraday, if it begins either by gapping up or by quickly recovering an opening dip. Any sustained gains would be odd after Friday failed to confirm Thursday’s breakout close. A temporary gain would not be inappropriate – maintaining it would be odd.

Indicators and Internals.
Simultaneous negative divergence in RSIs accompanied Friday’s last-minute highs. The pullback from there could be considered large only in relation to the narrow range it followed. But the divergence wasn’t invalidated, and it didn’t leave a sold base to launch a new rally leg.

Monday’s opportunities.
Friday’s close returned to the session’s opening levels. There is no predictability from a standing start. And no econ report is due Monday that might help to pinpoint a move’s timing. An early surge that also fails early would be very compelling for short-entry. And something might develop overnight. But there is currently no parameter.[/pay]

[pay]Pattern notes.
The S&Ps front-month rolled at Thursday’s open from Sep to Dec. I’ll reference the Sep contract prices in parentheses today as a convenience. All future blog posts will quote prices basis Dec.

The rally extended Thursday to fresh highs, trending up for the fifth consecutive session. The day’s 1039’50 high (1044’00) tested the next relevant resistance beyond 1010’50 (1015’00) by a 1-point margin. This and 1046’50 (1051’00) were never officially put into play, because buyers never gained traction while 1010’50 (1015’00) served as support to a six-day range that touched 1034’50 (1038’75).

Buyers never gained traction during the six-day range at August’s highs, and a 5% pullback followed. Characteristics of the past week’s rising prices are similar – key resistance holding tests through relevant timing windows, trending that originates during no-bias environments, brief or non-existent probes of support. The past week’s rally might prove to be a new rally leg, or an extension of the rally. But at this point it hasn’t disproved whether it is only a retest of last month’s highs.

The case would be different had this leg begun by gapping up Tuesday above 1022’50 (1027’00), instead of spending the day consolidating under it. Trending through this resistance doesn’t qualify as rejecting it. In the same way, a sudden, steep surge from present levels would be appropriate behavior for a shifting into hyper-drive. Otherwise, restrained buying will find it difficult to break free from its retest of August’s prior highs.

Indicators and Internals.
Technicals continued to be predictive of intraday price action, and continued to resolve intraday, leaving no new unfinished business in either direction.

Friday’s opportunities.
The last outstanding signals were essentially fulfilled before Thursday’s close. The first was a retest of the mid-afternoon high whose RSIs were simultaneously overbought. The second was a bounce target at 1040’00. The target was met within 2 ticks, while RSIs diverged negatively. There is effectively no unfinished business above, so any early surge to fresh highs would be sponsored by fresh buyers.

Modest opening selling pressure would suggest fresh sellers hadn’t arrived, although a post-open rally attempt could still be rejected. A more likely bearish scenario would quickly break under the 1034’00 area and reject Thursday afternoon’s new highs, extending lower without delay. More comments regarding the day’s econ calendar can be found here.[/pay]

[pay]Pattern notes.
Buyers failed to gain traction Tuesday because the decline’s Sep 1 last relative high was tested but not recovered (thick red highlight on the nearby chart, basis Sep).  Not recovered at all. Not at the open’s gap up, not intraday, and not at the close. The entire session was spent attacking the area, without probing it.

Another overnight rally into Wednesday’s open barely threatened the decline’s Sep 1 last relative high. But it was recovered after an opening dip. It was recovered to serve as support through much of the morning. And then again at the afternoon’s lows. The session’s last hour did rally back towards the noon hour consolidation. But this recovery was limited to the last hour, and it recovered no ground that hadn’t been covered previously.

In fact, the last-hour bounce held a test of the mid-day consolidation’s “higher prior low” (solid red line). For the rally to continue here, Thursday’s open must essentially gap up above the mid-day consolidation’s prior highs (solid green line). New highs would be targeted, but I would hesitate to consider buyers gaining traction for extending the rally leg. Rather, probes above August’s highs at this stage of the pattern would just be more noise around the range.

Wednesday’s late price action did trend, and it essentially trended up. The afternoon’s low (thick red highlight) printed before the last half-hour, so gapping under it would trigger a session-long decline. The setup is designed to identify trapped buyers (or sellers), but this would also happen to reject Wednesday’s close above the decline’s Sep 1 last relative high.

Indicators and Internals.
No new business was left outstanding by Wednesday’s technical action, and all technical setups were fulfilled intraday.

Thursday’s opportunities.
This pattern isn’t one to range narrowly from Wednesday’s close, and the day’s relatively high-profile news items are entirely capable of shaking things loose. The healthcare debate continues, but econ reports are more influential to price action. Thursday’s calendar is interesting, from Jobless Claims pre-open, to the 30-year bond auction at 1:00. A gap open beyond either of the afternoon’s extremes would be likely to extend in that direction… The S&P / ES front-month contract rolls to Dec (Z) at Thursday’s cash session open. The Sep (U) contract is front-month overnight.[/pay]