Market Wrap

[pay]Pattern notes.
Monday’s open gapped down to the range’s lower-end. The Trading Plan had noted that a gap down under the week-old range might break free from its gravity. Sliding 6-7 points from the open did damage the chart, chipping away at the support of Thursday’s prior lows. But it was another warning shot across the bow at buyers, and not a direct hit.

A last-hour dive could have materialized since the interim price action was lifeless. Indeed, a dive did materialize, reacting down 5 points from a blip up when the afternoon’s no-bias environment lapsed. That also left its market on the chart, despite recovering the spike as quickly as it had developed, and despite extending the recovery up to new session highs.

If not for that late damaging dive, a close above 1018’00 would have all but required one more corrective bounce – albeit within the range, but a bounce, nonetheless. The close did recover 1018’00, after the late spike down had dropped another anchor down to 1015’00. Another corrective bounce then became less likely, likely to be brief if anything, and likely to trigger a durable breakdown when complete. What’s the bullish strategy, if a corrective bounce is only going to end poorly? Simple. Don’t rally.

At least, not immediately. Monday tried that, probing last week’s lows without letting sellers gaining traction. Monday also spent the entire session in negative territory for “ineffectual pessimism. That last element isn’t crucial, but restraining both buyers and sellers at this stage would be bullish. Otherwise, without a near-term bounce to refuel sellers, a new downleg would almost require nothing less than a gap down to begin.

Indicators and Internals.
3-minute RSI only touched overbought and oversold limits after Monday’s open, but they never probed either. There wasn’t much difference in 1-minute RSI. Any trending attempt in that environment would be only a reaction, whether up or down or both. Regardless, no new business was created, let alone left unfinished to attract price.

Tuesday’s opportunities.
The econ calendar is a potential minefield, see my notes here. Extending down from Monday’s pattern all but requires gapping and extending down through the lows. So long as an opening drop wasn’t recovered, a session long decline would be possible. There is various support below, but very little that isn’t obligatory and temporary. Meanwhile, the gap back to Friday’s close doesn’t require being filled, but one more test of 1025’00-1027’00 can’t be discounted.[/pay]

[pay]Pattern notes.
It is already difficult to attract sponsorship on Fridays. With two days of illiquidity just hours away, fewer participants want to participate, let alone start a trend. The week-long trading range only made this more difficult. So, despite trending up overnight to probe the week’s prior highs, the test held.

The overnight trending’s timing also revealed that strong players weren’t sponsoring it. So, not only was it unlikely to launch a breakout, but it was likely to trap buyers in the process. Buyers that would scramble for the exits as the weekend continued drawing nearer.

The morning’s drop was stopped by this same principle. A lot of ground was covered in a short time 17 points off the high at 12:30. In the same way that bulls were excessively optimistic trying to break a range Friday morning, bears would have been excessively pessimistic to drive price lower Friday afternoon.

Friday’s non-sellers revealed their own strength by not taking the bait. They didn’t gain any traction from closing back at the range’s middle. But neither did they extend themselves inappropriately. And there was no evidence of short-covering to suggest impatient selling even had any influence. A breakout attempt is still possible, and it would be credible, but nothing is attracting price higher otherwise.

The bigger picture.
The week-long trading range doesn’t change things, except that an entire week has elapsed at new highs without changing things. And that changes things.

A fresh high has gone stale instead of either exploiting it by extending higher, or refueling it with a dip. Thursday’s dip was too late, too shallow, and too brief to qualify. This is not the stuff of a bull market under accumulation, but of a correction reacting. The rally’s definition as being a correction remains unchanged, and its ultimate resolution remains back down to the lows.

What has changed is the timing. The fresh high went stale in what has become an extended sideways range. This has created mass, and that mass has a gravity. Attempts to trend away from this range will be attracted back to it. Gapping open beyond the mass would have better chances of survival, but not gapping within the mass.

This can’t come at a better time than this week. Seasonal bullishness that often accompanies a three-day holiday weekend. Gapping Monday or Tuesday might be able to extend before the fast-approaching illiquidity dissuades sponsorship for trending. A weak decline to as low as 981’00 this week could launch a bounce next week back into the mass. A more forceful decline would still have room down to 981’00 before signaling the trend has reversed down.

Indicators and Internals.
RSIs weren’t overbought at Friday’s pre-open high, which was an amazing disconnect from price action, considering the price action was behaving very optimistically. RSIs were oversold at the noon hour low, timing that makes its retest likely but not required. Otherwise, the only unfinished technical retests are below the market from prior sessions.

Monday’s opportunities.
There’s no unfinished business above, nothing mandatory. Friday’s opening gap was under the prior high being retested. And the gap was retested anyway after touching the prior high. Still, it’s going to attract price higher if buyers get any traction at Monday morning above 1030’50. Any early modest selling pressure probably won’t gain traction either. A morning sell-off depends mostly upon breaking early under 1023’00 and extending lower without delay. The econ report scheduled at 9:45 is unusual timing, so any initial trending will have to stand the test of time to be credible.[/pay]

[pay]Pattern notes.
Thursday’s open seemed to be breaking traditions in place all week. Selling off steeply at the open, breaking to new relative lows, remaining under pressure through the morning. But this was just the inverse of Monday and Tuesday morning’s strength, this time testing 1015’00 as support instead of 1035’00 as resistance.

Like those sessions, Thursday morning’s trending also returned to the 1025’00 area. The resolution differed from each of the past four sessions by extending through 1025’00, and by closing above 1027’00. But this, too, shall soon pass, since it originated during a no-bias environment.

The question is when. And if not immediately, then what can be expected in the interim.

Had Thursday’s last hour done something – anything – other than range narrowly under session highs, the bounce would have been likely to resume Friday morning. Keep buyers in control with higher highs, or else neutralize the required retracement. Either path could have marginalized sellers, and Fridays have a way of leveraging that into something big. Instead, Friday’s open will essentially play defense, unless the opening effort is very strong.

Opening positive, but not slicing through or gapping up above the 1035’00 area, would still be abnormally vulnerable to reversing back down into negative territory. A stronger open would target 1043’00, and this being a Friday, its retracement would be unlikely before mid-afternoon if at all.

On any other day, immediately retracing the no-bias trending could have left time for an intraday recovery. But this being a Friday, the morning’s bias parameter tends to persist through the noon hour. So, a fast, steep dip would be bullish only if retraced just as quickly, before a bias-down signal could trigger. Gapping down would leave unfinished business above to inhibit trending down too far for too long.

Indicators and Internals.
Simultaneously oversold RSIs at Thursday morning’s low require its retest. RSIs were simultaneously overbought at the late-afternoon high. This is likely to be retested, but not required, since those RSIs were lower highs. Regardless, the attraction could be neutralized if retested overnight.

Friday’s opportunities.
In case of initial weakness, it will be difficult getting too bearish unless the 1025’00 area is broken decisively early enough. Early strength that also fails early would be a compelling short. That’s not to be confused with early strength that simply stalls – this being a Friday, any inkling that the week-long range is breaking higher could be a self-fulfilling prophecy, squeezing shorts and sucking in any sideline money sitting nearby. This could be triggered by initially gaining 6-7 points and then treading water. By contrast, sellers would have to lose a lot of ground quickly to start pushing crowds towards the exits.[/pay]

[pay]Pattern notes.
Two econ reports are due before Thursday’s open. Normally, I would address this below. But a pattern has formed that may be instructive. The last three high-profile reports instantly triggered buying, and that optimism has been retraced entirely.

The first two instances were retraced almost immediately – Wednesday’s 10:00 New Home Sales was likely either to extend its initial gain, or else its instant reaction was likely to be down. The reaction was up, and then up further. Its ultimate retracement wasn’t due to factors that developed later.

Now the pattern has become even more limited. The initial reaction either way to surprising news is likely to extend more substantially, in terms both of price and of time. A surge would likely gain traction, last the day, and threaten the week’s prior highs. A break lower is likelier, and it would be likely to trend down sharply, potentially for days.

Gapping open has also become much likelier due to this week’s three consecutive days of ranging around Friday’s landmarks. Its 1025’50 and 1027’00 high have been probed much higher without buyers gaining traction. Probes lower have also retraced. As discussed here yesterday, this is distribution and it predicts a downleg soon, even if a detour to 1043’00 were inserted.

Indicators and Internals.
Technicals left no new business unfinished. But it was interesting that intraday reversals signaled by 1-minute RSI were not signaled by 3-minute RSI. Apart from a simultaneous negative divergence at the morning’s high, the 3-min never probed either overbought or oversold territory. Not surprising for yet a fourth consecutive session closing at 1025’50-1027’00, but still interesting to know there’s nothing hidden beneath the surface.

Thursday’s opportunities.
The day’s econ calendar is interesting, especially Jobless Claims. Treasury is auctioning 7-year notes, and recently shorter-terms have gone off fine. This doesn’t make longer-term paper more or less likely to get done without a hitch. But it does gradually reduce the market’s jitters, and that does make any hiccup likelier to have an effect. Extra care and attention is warranted if trading around this items. [/pay]

[pay]Pattern notes.
Tuesday’s open gapped up. The intraday high probed prior highs. The entire session was spent in positive territory. That’s a lot of optimism. But buyers didn’t gain any traction, so it was “ineffectual optimism.” The market is immediately vulnerable to a downleg, and any interim bounce is likely to fail.

The afternoon low filled the gap back to Monday’s close. Natural support there produced a bounce that could have lifted price away from the risk of a downleg. But the bounce peaked upon testing the afternoon’s prior high, and the filled gap was tested again into the close.

Friday afternoon’s 1027’00 high held as resistance through Monday’s close, failing to confirm Friday’s breakout attempt. Now it has held again through Tuesday’s close. Price action above 1027’00 is distribution, which is the great majority of price action since Friday afternoon. Two consecutive attempts have failed to trend higher from Friday’s breakout attempt. It is one thing not to confirm the breakout. It is another thing not to use that time for a pullback to refuel buyers. Instead, buyers have been expending their energy just to tread water.

The actual breakout activity above 1015’00 amounts to a 20-minute surge after Friday’s opening gap up to 1013’75. This area’s eventual retest is likely in almost any scenario. Testing it sooner rather than later might still be able to recover for a better breakout attempt.

Indicators and Internals.
RSIs were simultaneously oversold at the 1018’25 overnight low. Being overnight and not intraday, its retest isn’t as likely, but it is still likelier than not. Overbought RSIs at Tuesday’s 1038’00 high don’t require a retest since they were the product of a news spike. But its retest would be a likely objective if buyers were to catch a second wind Wednesday.

Wednesday’s opportunities.
A gap up above Tuesday’s 1030’25 last-hour high would be likely to extend intraday, with potential to retest the morning’s 1038’00 high. But almost any opening weakness, perhaps even overnight, is likely to be productive intraday Wednesday. The calendar isn’t empty, and that has been helpful to the rally recently, although the gain resulting from Tuesday’s reports wasn’t very long-lasting. [/pay]