Market Wrap

[pay]Pattern notes.
Monday’s open maintained a gap under Friday afternoon’s 994’00 low to form a session-long decline setup. Actually, the open’s gap down at 984’25 was 10 points under the session-long decline setup, so much of the selling pressure was already expended. But the setup was fulfilled anyway: all bounces failed, buyers gained no traction, and the session low printed during the last hour. In fact, the setup’s only optional characteristic was also fulfilled when the actual 975’50 low printed among the session’s final ticks.

A successful session-long decline setup often extends further the following day unless rejected at the following open. A rejection in this setup would gap up above Monday afternoon’s highs, through 983’50, triggering at least near-term corrective bounce targeting the low 990’s.

But a bounce or recovery is the exception. Monday’s last-minute 975’50 low  printed after the cash session close, as did its bounce back up to 979’25, too late to reflect substantial selling pressure or to suggest buyers gobbled it up. The afternoon’s fresh session lows waited so long, and they stopped just short of filling the gap back to July 29’s close, each a reflecting optimism, when a bottom needs pessimism. Having barely probed the 976’00 upper-end of July 27-29’s range, the range’s 966’00 lower-end is likely to be tested, too.

This week being expiration, new trending can extend much further than normal ranging. Trending can also stop prematurely. Extended selling would be signaled by gapping down through 966’00, next targeting 952’50-954’50. The drop’s premature end would probably outlast expiration by recovering the 990’s.

Indicators and Internals.
RSIs were eerily subdued through Monday afternoon. That didn’t prevent probing lower lows, but sellers reserved their energy. Two earlier positive divergences failed to avoid probing session lows, but there wasn’t a third to reflect much bigger selling pressure coming down the pipeline. It’s still possible, and sizable selling pressure would still be respected, but a corrective bounce can’t yet be discounted.

Tuesday’s opportunities.
A steady flow of econ reports provide an interesting obstacle course to navigate. Their ultimate reaction – either bouncing or extending down further – should reflect whether the market has grown wary of news items. Getting past the news while holding a test of prior lows would help to launch a mid-week corrective bounce. Otherwise, without rallying early, more destruction is likely. [/pay]

[pay]Pattern notes.
We’re holding our collective breath. News of the country’s sixth largest bank failure greeted the weekend. Educated guess: that’s probably not why Friday’s last half-hour surged 10 points. Another educated guess: The news probably won’t shouldn’t trigger the surge’s retracement. FDIC seizures tend to be seamless (Colonial was scheduled to open Saturday morning after its deposits were sold to BB&T).

Friday’s last hour was vulnerable to a 10-15 point move. Down was likelier than up, but the drop’s 995’00 trigger was only touched and not broken. Its potential remains alive according to the first chart displayed here.

Two similar sessions in the past two weeks alone (highlighted red) were immediately retraced, and then some. Three other sessions during the same time frame (highlighted pink) illustrate generally depressed sessions that decide not to end by surging. Their persistent pessimism got selling pressure out of the way.

Sessions like Friday simply wind-up sellers. This is the case even more so when the buying isn’t productive. Despite the points gained, no relevant level was recovered – no prior high, not positive territory. The buying started too late to be short-covering, so it was not the product of prior sellers exiting. It also started too late to be strong hands buying, so it was not accumulation. Rather, it was weak hands buying, now long with inventory they’ll dump with little provocation onto the market.

Those buyers left nothing on the table, no unfinished business above, as shown in the second chart. The gap back to Thursday’s close need not be filled since Friday’s open retraced its last-minute surge. Friday’s late surge peaked upon retracing a normal 61.8% of the distance back to Thursday’s close. And the surge tested all prior lows that could have been tested from below. An immediate break back under the nearest two or all four – 1002’50 or 998’00, respectively – would put into play a retest of the same lows that were attacked all morning Friday.

The bigger picture. The rally does have a way out, but it would come from the outside and not from anything now inside it. Recall that this rally’s last targets were met at 981’00 and 1015’00. There are no more extended targets. Notice in the first chart above that even Friday’s low overlapped the two-week old session that first met 981’00. Rallying further would be due to new sponsorship having arrived, and it would announce itself by finally launching out of the two-week long range. Anything milder than such obvious price strength could fill the gap back to Thursday’s close.

Indicators and Internals.
Although RSIs made lower highs at Friday morning’s 11:30 price low, both 1-minute and 3-minute were oversold. So the 992’25 is likely to be retested, similar to Thursday’s 998’00 low. Lower quality buyers are attracted to such oversold situations, so their product is likely to fail. RSIs became simultaneously overbought just before the close, too late to be responsible for the next reaction.

Monday’s opportunities.
An opening dive would have a scapegoat to blame, the bank failure news. This can assist in absorbing the shock. If fallout lasts very long past the open’s first 15 minutes of volatility, then sellers’ motives are genuine, and durable. A gap down maintained under the afternoon’s 994’00 low would go so far as to signal a session-long decline. Recovering or gapping up above 1011’00 would be near-term bullish. But a longer-term bullish effect wouldn’t be known from any opening setup.[/pay]

[pay]Pattern notes.
A funny thing happened before Thursday’s open, on the way to retesting last Friday’s 1016’00 high. The overnight 13-point rally from Wednesday’s 1002’25 close was optimistic in the wake of positive comments about a global recovery. The it was blind-sided by econ reports showing quite the contrary. The reaction fell through the rally’s origin back to 998’00.

A funny thing happened on the way to reversing optimism into pessimism. The drop’s momentum was clearly at its extreme, but its reaction bounced back to the morning’s 1010’25 bias-up target. Through some very satisfying wide intraday fluctuations, S&Ps ultimately held 1010’25 through every relevant timing window. Any higher through any relevant timing window would have started being bullish. But late narrow ranging around 1010’25 broke higher on a very last-minute 3-point surge that originated too late, after too long, to be considered valid.

In fact, the late surge peaked at 1014’00, a 61’8% retracement into the consolidation at Thursday’s pre-open highs. Tuesday’s late dip to 991’00 served a similar function in retesting that day’s low, and lower lows didn’t come easily or for very long. Thursday’s late surge also essentially fulfilled the 1014’25 target of a last-hour buy signal. Two similar setups this week also left the next day’s open without trending underway or a pattern forming. Their opening gaps were large and their intraday reversals larger.

There’s room overnight for a break above 1015’00 to added 2-1/2 points. And even higher highs intraday Friday could threaten to probe new highs for the week by 7-8 points. Otherwise, a bigger drop overnight could reinstate Thursday morning’s reality check, awakened and exacerbated by the weekend’s fast-approaching illiquidity.

Indicators and Internals.
RSIs were simultaneously oversold at Thursday morning’s 998’00 low. Also, 3-minute RSI was at its lowest oversold while the lowest 3-minute price bar formed. Bottom-fishers step in front of such aggressive selling, but they’re time horizon is short-term. Durable rallies don’t tend to follow, so 998’00 should be retested. Meanwhile, a very minor negative divergence after Thursday’s close has inhibited price from rising further. If it doesn’t reverse down from testing 1015’00, then the next higher target at 1017’50 would be dangerous.

Friday’s opportunities.
Since Thursday’s optimism was blind-sided by econ reports, Thursday afternoon’s optimists should be concerned. They might want to retrace overnight where Friday morning’s calendar can be better absorbed. Instead of three reports coming simultaneously, three releases are staggered from pre-open to post-open. Of course, the reaction(s) might be irrecoverable if the reports confirm Thursday’s surprises.

SPECIAL PROGRAMMING NOTE: My availability next Wednesday August 19 will be very spotty. I am still arranging the logistics, but even the best case scenario will have me away from screens for at least a couple of chunks of time. I will update this as more information becomes available. [/pay]

[pay]Pattern notes.
Wednesday’s close was similar to Monday. The last trending attempt signaled was a reversal back into the session’s range. And despite so little time remaining, the signal’s target was fulfilled at the close. In both cases, the predictable had been fulfilled. With no new pattern having formed, the market was making no new predictions.

Monday’s trending was a bounce back up to session highs. Its target was 1005’00-1007’00, whose lower-end was met at the cash session close while its upper-end was met just minutes later. Wednesday’s trending was a drop from session highs targeting 1002’00, finally met just after the cash session close.

The session close is a timing window, just like the bias windows. They aren’t often entered without either a target outstanding or a pattern forming. It’s already happened twice this week.

Wednesday’s uptrending session rejected new afternoon highs on the way to closing under noon hour lows. Buyers retaking control Thursday would all but require an immediate recovery of the noon hour’s 1006’50-1007’50 highs to reject having closed under the noon hour’s lows. That’s just to retest Wednesday’s highs up to 1010’25, and be positioned for retesting last week’s highs, too.

Sellers have a lower standard, to break under 1001’00, and a much greater near-term reward at 994’00. This doesn’t make sellers any more likely to regain control Thursday. But the weekend’s arrival should make clear that the past two-week trading range has been topping, unless it wasn’t.

Indicators and Internals.
The morning’s persistently overbought 3-minute RSI helped to keep expectations pointed up. The afternoon’s simultaneous negative divergence made clear that accumulation wasn’t forming and that sellers would be pushing back. But there was no technical signal at the close to leave any unfinished business.

Thursday’s opportunities.
The reaction to Monday’s satisfied trending was a gap down Tuesday. Wednesday’s reaction on Thursday will have plenty of news catalysts – three reports at 8:30, Jobless Claims among them. Things might calm down for the morning (if the open is volatile) ahead of the 1:00 auction for 30-year Treasuries. [/pay]

[pay]Pattern notes.
Tuesday afternoon’s price action mostly bounced. It bounced almost as high as was allowable for a correction, although it lasted a little longer than it should have. But a last-minute dive still had time to reach significant levels, coming within 1 point of session lows at 990’00 (highlighted yellow).

The dive’s 991’00 low did probe 61.8% into the consolidation at session lows. That’s deep enough to satisfy selling pressure, so that a bigger bounce could begin on Wednesday. It’s also deep enough that trading any lower Wednesday would signal Tuesday’s last-minute dive was extending.

Lower lows would put into play the next objective  (also highlighted yellow) at 981’00. Had the decline resumed Tuesday afternoon instead of bouncing, its excess pessimism could have bottomed near-term around 984’00. Now, the best chance for bottoming would be a gap down to the 981’00 area, expending more selling energy than created.

The 981’00 area probably won’t break easily if tested. It was the rally last extended target prior to 1015’00, and both were fulfilled, so a close under 981’00 would signal a massive trend reversal underway. After more than a week of continually higher intraday highs without buyers gaining traction, Tuesday’s range touched some part of all those prior sessions. A credible rally can’t begin from the current pattern, a pattern that is much more likely to produce a durable decline.

Indicators and Internals.
All of Tuesday’s overbought and oversold conditions were retested intraday. There were no divergences left unfulfilled. The morning’s three consecutive ignored positive divergences did produce lower lows, albeit not substantially lower lows as was the potential. Nonetheless, there is no unfinished technical situation requiring a move in either direction.

Wednesday’s opportunities.
The morning’s econ reports aren’t very influential. The 10-year auction at 1:00 is vulnerable to a surprise. A reaction in either way probably wouldn’t get very far, not while the market is otherwise paralyzed by anxiousness ahead of the 2:15 FOMC announcement. Any trending prior to noon should begin before the open, and extend beyond a relevant level if it’s going to avoid being retraced into the close. [/pay]