Market Wrap

[pay]Pattern notes.
S&Ps were up about 11 points at Tuesday’s close. As they were when the session’s last hour began, as they had been for an hour before the noon hour. Up, that is, from Friday’s close. But this area also represented the cash session’s 1025’25 opening tick. Several intraday attempts to trend lower all failed, but nothing came of their recoveries. So, not much can be said for the quality of Tuesday’s buying, other than that it absorbed Tuesday’s selling.

For example, the open’s dive bounced back from 1019’00. Letting the drop extend just one more point to probe 1018’00 would have made its recovery meaningful. Instead, it meant sellers were impatient. Early afternoon selling was shallower, but actually more substantial due to its timing. Its recovery would have been meaningful had it probed prior highs. It didn’t.

Sellers lost traction by not preventing a close above 1018’00 Tuesday. They can still regain traction by closing under the low of the session that relinquished control, i.e. under 1019’00. A break under Tuesday afternoon’s 1020’50 low could evolve into something more bearish. Otherwise, the next opportunity for sellers to gain traction probably wouldn’t come before probing prior highs.

Especially if prior highs are tested sooner, rather than later. Trying again so quickly without first dipping to refuel buyers would be even less likely to succeed. Buyers lost the chance to gain traction either by gapping up above the decline’s last relative high around 1028’00, or at least by closing above it.  This makes it easier for the 1027’00 overnight highs to hold a retest, or else the 1038’75 prior highs.

So, while sellers lost traction on the effort they began at last week’s open, buyers didn’t gain traction by default. And they probably can’t get it by extending higher without at least recovering another dip to refuel buyers. If sellers regain traction first, then buyers since Friday’s close will be trapped and clawing to get out at almost any price.

Indicators and Internals.
Technicals left no new unfinished business. They did identify several major turning points, but all were fulfilled intraday.

Wednesday’s opportunities.
It’s an interesting day on the econ calendar. But the pre-open price action may be more important – if it breaks free of the 1020’00-1027’00 range. Otherwise, later reactions to Beige Book or other data may be much more comfortable returning back into the range.[/pay]

[pay]Pattern notes.
Did Friday’s behavior buck the trend, or follow it? The prior Friday’s open had gapped up to new highs on favorable news, but price then reversed down sharply. Since then, the market had become defined by more of the same: a favorable reaction to favorable news, soon rejected by price action dropping.

Friday’s news was bad, and the reaction was good, albeit eventually.

Has the market gone from bearishly selling off on good news, to bullishly buying good news? Or, instead of putting that sloppy phase behind it, perhaps Friday’s reaction was just another side of the same coin. The first scenario could be true, but the second scenario remains intact until the chart says differently.

The session’s rally is relevant to the chart. Of course. More relevant, though, is what that rally accomplished, or did not. Friday’s rally fulfilled the potential for a normal corrective bounce back to higher prior lows at 1015’00. Indeed, 1015’00 is the ultimate target of the last rally leg from July’s low and now it has held another test.

To be sure, the corrective bounce came at least a day later than normal. That can be explained – but not quite dismissed – by the seasonal influence of a three-day holiday weekend. And the bounce did put price within closer distance of gapping up above prior highs (green box and green highlight on the chart) to signal momentum reversing up.

But the scenario that took price down hasn’t been invalidated simply because its first downleg was corrected by a normal amount. Those same prior highs (in green) could also withstand a test intraday if no gap up occurs. And meanwhile, a break back under 1007’00 would at least probe last week’s consolidation at the lows. Either way, the holiday-shortened week may find the same urge as last week, getting big trending underway early.

Indicators and Internals.
The chart’s red box identifies Thursday afternoon’s low. Its 3-minute RSI was at its lowest oversold along with that 3-minute price bar. This requires a retest eventually. Closing under this level would essentially signal or confirm a new downleg underway.

Tuesday’s opportunities.
Friday’s U.S. rally might inspire global markets to follow suit, which could help Tuesday’s regular session gap up above prior highs. Bias parameters are available for the Globex session that trades through 11:30am ET Monday. The targets listed are aggressive, but 3-point moves would be likelier. Normal morning bias signals will be made available for Tuesday. [/pay]

[pay]Pattern notes.
Thursday afternoon’s ranging finally gained traction with a rally into the close. It began after the no-bias environment had lapsed, so it doesn’t require being retraced. And it began after the afternoon dip’s target was essentially met, so there isn’t any recent unfinished business below – not from this particular leg.

However, the session did create other objectives that require fresh lows. The morning’s no-bias environment was triggered after testing the bias-up signal, making its 990’50 bias-down signal likely to be tested. While coming within 3 ticks of fulfilling this objective, the morning’s low touched Wednesday’s pivotal low (i.e. the low prior to the actual low). This requires the 991’00 actual low to be probed, too.

There was no requirement to retest the 1004’25 pre-open high, but there is an attraction back to it. Thursday afternoon’s rally to new session highs came close, making the retest all the more likely. If this attraction can prevent Friday’s open from probing fresh lows, an intraday rally could test “higher prior lows” around 1015’00. A downleg’s normal path down would include this, neutralizing the “higher prior lows” attraction before working lower.

But then, the normal path down doesn’t delay correcting a steep, deep drop like Tuesday’s slide. A normal corrective bounce may have been replaced by a series of smaller intraday bounces since Wednesday’s low. We’ll know so at Friday’s open because it will be probing fresh lows. Don’t forget that Thursday’s open snatched defeat from the jaws of victory when it failed rejected gapping up above prior highs. The closing probe above prior highs peaked at the “sleeper highs” once again, so buyers haven’t yet regained traction.

Indicators and Internals.
Both 1-minute and 3-minute RSIs were overbought when Thursday afternoon’s rally peaked, too late to be influential. Nevertheless, RSIs diverged negatively on its retest after the Globex open. The 3-minute RSI was at its lowest oversold when Thursday afternoon’s dip bottomed, requiring its retest.

Friday’s opportunities.
The Employment Situation report is the only econ report on the calendar. It’s been quite awhile since it monopolized the day. And the market is rarely tasked with absorbing such weighty news ahead of a three-day weekend’s illiquidity. Similar to Thursday’s session-long rally setup, maintaining a gap down Friday under Thursday afternoon’s 994’00 low would signal a session-long decline. This being a Friday, the morning’s bias tends to persist through the noon hour. So a no-bias signal would still leave potential to trend during the session’s last 90 minutes. [/pay]

[pay]Pattern notes.
Wednesday afternoon’s 4-point range lasted 4-1/2 hours, and then the last 20 minutes dived 5 points. Normally, the first breakout from an extended narrow range tends to be false. Its purpose is to attract help for sponsorship that was too weak to start trending from within the range. Last-minute breaks are different because stronger sponsorship doesn’t enter at the close.

That cuts both ways. If stronger buyers aren’t attracted at the close, then neither are strong sellers. I had noted earlier there was room for noise down to the afternoon’s 993’75 bias-down signal. A bigger drop would have required big sellers, and would have been a breakout. But the last-minute drop’s low was defined by 993’75.

If the last-minute drop’s purpose was bearish, it should have extended down by now. Indeed, price continues ranging narrowly around 993’75 almost two hours after the close. It did put price right back at the 992’00-993’00 target area identified here yesterday. Meaning that its test didn’t fulfill the decline’s selling pressure.

The drop’s purpose might have been bullish for near-term purposes: for example, more pessimism without sellers gaining new traction (i.e. “ineffectual pessimism”). This makes it easier for an interim bounce, whether in sympathy with stronger markets overnight or in reaction to the next econ report. Remember that false break from a narrow range? Ignore Wednesday afternoon’s 4-1/2 hour 4-pointer, and look at the 11-point range forming since Tuesday’s low. Its false break would be bigger, and so would the ultimate real trending.

Immediately extending down from Wednesday’s late drop either would resemble Tuesday morning’s dive, or else recover for a corrective rally into the weekend. This pattern shouldn’t sit still.

Indicators and Internals.
Wendesday’s last-minute dive also took RSIs to simultaneous oversold lows. This setup intraday would doom any bounce to failure. Instead, being a last-minute occurrence, its validity suffers similarly to the breakout described above. No other setups were left outstanding.

Thursday’s opportunities.
Because Wednesday’s last trending was down, and because its 999’50 afternoon high didn’t print during the last half-hour, gapping up above 999’50 would trigger a session-long rally. Gapping up to that area and then quickly extending through it decisively would qualify, but not hanging out there through the first half-hour. A break under 992’00 – even overnight – would be vulnerable to extending down. Aggressive traders might give it a benefit of the doubt, and a relatively tight stop. A recovery from another overnight low wouldn’t be very credible for very long. Two high profile econ reports could put both scenarios to the test.[/pay]

[pay]Pattern notes.
Monday night’s temporary bounce up to 1025’50 had stopped short of filling the gap back to Friday’s close. That was overnight, not intraday, but it was a better effort than Monday tried. It didn’t require being filled, anyway, but the unfinished business would have really nagged at any bearish scenario. Tuesday’s opening surge to 1027’75 did fill the gap, which did push price back down through prior lows.

The point I’m trying to make is that the market is trying to make a point. It’s not taking any prisoners. Any bounce’s purpose is just to refuel sellers, and it is not for accumulation or to gain traction. A bounce could start Wednesday morning – whether by gapping up, or from first probing lower lows down to 992’00-993’00 – targeting “higher prior lows” at 1015’00-1016’00.

Resuming the decline either immediately or after a bounce would next target 979’00-981’00. Whether gapping up first or gapping down, there might suddenly be unfinished business above the market where there currently isn’t any. This would help the next target hold as support temporarily, but it wouldn’t make the rally likely to resume.

Indicators and Internals.
Oversold technicals at Tuesday’s lows were neutralized by lower lows two-three more times before the close. No other oversold or overbought situation formed that might attract or inhibit price action either way Wednesday.

Wednesday’s opportunities.
Unless Wednesday’s open immediately resumes the decline forcefully, a corrective bounce would be very likely. It might already be underway by then. Anxiousness ahead of the afternoon’s FOMC Minutes should mid-day inhibit trending in either direction.[/pay]