Market Wrap

[pay]Pattern notes.
A three-hour rally overnight nearly touched 997’00. It was still being touched ten hours later, thirty minutes before the close. The last half-hour bounced 5 points back up to the afternoon’s 1001’00 high. The hour prior to that was spent dipping 5 points. The late-afternoon’s 5-point range was centered around the morning’s 999’25 high.

If not for developing almost entirely above prior highs, Monday’s session would hardly be considered trending. Even the afternoon alone failed to range away from Thursday’s 994’00 prior high until after the noon hour ended.

Any trending momentum does require closing above Monday’s highs to confirm. Failing to do so wouldn’t necessarily give sellers traction – no more so than any previous unconfirmed breakout attempt. But no confirmation would create more ballast to accelerate the eventual rejection of new highs.

Continuing the rally depends less upon faster pace or steeper slope, and more on shallow pullbacks. Anything less bearish than a gap down under 994’25 would be likely to resume the rally, next targeting 1006’25, with potential to 1015’00. Slightly deeper opening weakness might rob buyers of their traction, but it wouldn’t necessarily give sellers traction by default.

The credibility of a more serious gap down would be earned by starting under a prior intraday extreme, like Monday’s 988’75 low. Thursday and Friday’s 982’00 lows would offer support, unless 984’00-985’00 produced an obligatory bounce, first. Otherwise, sellers don’t gain traction without a sizable intraday drop, preferably from first probing new highs.

Indicators and Internals.
RSIs ranged well within overbought and oversold throughout most of Monday. They were simultaneously oversold at the open’s 998’75 low, suggesting the level will be retested eventually. But there was no excessive buying or selling pressure through any other intraday fluctuation.

Tuesday’s opportunities.
The morning’s econ reports are evenly spaced from pre-open until a half-hour later. This should keep price action dodging, ducking and dodging – perhaps not trending at all. A new high that is retraced through the opening sequence probably wouldn’t gain any traction without big news pressuing price down. The burden of proof remains on sellers, and they have yet to deliver. I would still be suspicious of their first attempt to do so.[/pay]

[pay]Pattern notes.
Thursday’s late sell-off developed entirely during the noon hour. This left open the possibility of it having been an anomaly. The odds of this were low since we knew since 10:30 that the rally’s momentum had already peaked. Nevertheless, immediately recovering Thursday’s last-hour dive would have invalidated it. The rally would have been validated by default.

Oh, well. The late drop’s 990’00 origin wasn’t just unrecovered, it was tested 2-3 times intraday Friday. The level’s relevance Thursday confirmed that Friday’s drop there wasn’t arbitrary. The inability to recover 990’00 included repeated rejection from there back down to session lows, back down to 981’00. This is not chipping away at resistance, but chipping away at support.

As for 981’00, the last upleg’s target, Friday’s session didn’t close above it any more than did Thursday. Thursday’s close was still in the process of testing it, and so Friday’s closed within ticks of touching it. Closing firmly above it would have decleared the rally’s next target in play at 1015’00. Quickly retracing its first recovery attempt could have mounted another effort. Hanging out at 981’00 – more so, failing further efforts to extend higher – only expends buying pressure to help establish a ceiling.

Friday’s session didn’t probe prior highs, so it is not “ineffectual optimism.” The session also did not range in negative territory, so it is not “ineffectual pessimism.” Those days were last week, when buyers indicated they had run out of steam, while sellers indicated they weren’t biting at then-current levels. A test of last week’s range between 968’50-976’50 is likely regardless of whether its test launches another rally effort or simply gives way into a decline.

The hesitation could still be absorbed and resolved, and the rally resumed. Buyers could still be stretched more thinly by extending higher first Monday, without initially pulling back as just described. The base launching such an upleg hasn’t attracted durable buyers, so the extended gain (i.e. to 1015’00) would be expected to retrace entirely. A dip into 968’50-976’50 could launch an upleg that has more durability. The rally must negotiate these challenges, and these challenges aren’t often negotiated successfully.

Indicators and Internals.
RSIs never became oversold during Thursday’s last half-hour drop from 991’00 to 982’00. So RSI never diverged positively into the lower lows. In fact, 3-minute RSI continued deteriorating throughout, into the closing tick. Technicals suggest the bearishness will persist through the weekend, and the selling will continue through Monday’s open. RSI’s last relative high occurred while a bounce was testing 986’00, so a gap back above 986’00 would help to rob sellers of their traction.

Monday’s opportunities.
If the selling does resume, it is likely to resume Sunday night for a gap down Monday. In that case, I would expect the 976’50 area to serve more as resistance to bounces, and less likely to stop or slow an opening drop. The least likely scenario would resume the rally, but it would be credible if begun forcefully, immediately recovering above Friday’s 990’00 highs.

There is a template for the pattern that would expect relatively narrow ranging to extend throughout the day, so that would be likely if the open isn’t budging. The template will be under attack: Motor Vehicle sales are released throughout the morning, while two econ reports are due 30 minutes after the cash session open.[/pay]

[pay]Pattern notes.
Thursday afternoon’s pattern could have escaped trending beyond 988’00-992’50. The noon hour’s range was only 2-3 points, the 2-3 points added after the Treasury’s auction were eventually retraced. But sellers hit the last half-hour hard, anyway.

Three consecutive “ineffectual pessimism” sessions had already told us buyers were tired, but sellers wanted higher prices before attacking. We already knew before 10:30 that the morning’s rally had lost momentum, and that any higher high would be only the prior high’s retest. Buyers needed to refuel, first, or else a later pullback would make the “afternoon could look entirely different than this morning’s surge.” Finally, the shallow pullback made the rally’s resumption unlikely.

That’s all neat to know, but it’s all neutralized. Although the post-open upleg was retraced to its origin, sellers didn’t gain traction just because buyers didn’t. It certainly doesn’t speak well of buyers to have retraced all post-open gains. But the next 8-9 points could be up or down without answering which direction the bigger move will take.

Thursday’s breakout close needs a second consecutive higher close to confirm. Whether likely or not, it’s difficult, but still possible. That’s just a pattern’s analysis. As for the 981’00 signal, having been the rally’s most recent target, closing above it means the next higher target at 1015’00 is in-play. Thursday’s close barely held 981’00, and it was soon tested after the close. A close back under 981’00 Friday would invalidate Thursday’s signal, but wouldn’t be a sell signal, or prevent another try.

Indicators and Internals.
1-minute RSI diverged positively into Thursday’s close. It came a little late to be reliable, and the 3-minute didn’t confirm at all. At least RSIs weren’t simultaneously oversold to doom any bounce to failure, as they doomed the pre-close bounce that failed. But there are no outstanding signals from the day.

Friday’s opportunities.
Gapping down would form an Island of Thursday’s session, likely to be retested sooner rather than later. Sliding down instead would still be likely to retest Thursday’s range on a bounce. Filling the gap back to Wednesday’s ~974’00 close would likely include a test of 971’00.

Bouncing first overnight or Friday would target Wednesday’s intraday ” higher prior lows” at 989’25-990’50. The rally could then resume, or else a bigger drop could get underway. Gapping up above Thursday afternoon’s 992’25 highs would be likely to trend higher throughout the day. Session-long rallies on Fridays tend to bleed into the following week.

It seems like the GDP has already been leaked to some degree, or at least won’t be much of a surprise. The PMI comes 15 minutes after the open, and could be much more influential. Regardless, this being a Friday, the morning’s bias environment is likely to extend past the noon hour.[/pay]

[pay]Pattern notes.
The more things change… Wednesday was a rare third consecutive “ineffectual pessimism” day – gapping down, trading exclusively in negative territory, while sellers fail to exploit an opportunity to gain traction. But wait, there’s more…

Once again, the session ended with a surge back to or through the day’s highs. This recent tradition actually started Friday. Each of the “ineffectual pessimism” sessions have rejected this by gapping down.

If this sequence were developing at the tail end of an extended decline, it would be very bullish. Most recently we saw this in real-time with the long-bond’s bottom under 113’00, and with Crude’s recent bounce from testing 60’00. This instance, however, is appearing in an uptrend.

It would be outright bearish if it were probing higher highs intraday, inverse from the bond and oil market’s lows. Those trends were sponsored by sellers, so the burden of proof was on them, and their evidence was thin. In the S&Ps rally, the burden of proof is on buyers, so this “ineffectual pessimism” only measures selling pressure.

Despite being ineffectual, sellers can still be productive. But that productivity would likely be limited to testing “lower prior highs” down to 954’50. Sellers probably lack sufficient sponsorship to break any lower. Such a pullback would more likely launch a new upleg targeting 1015.

This week’s “ineffectual pessimism”in an uptrend can also react by attempting to renew the rally. The second chart shows this week’s earlier overnight highs. The first high is the highest, a “new Globex trend extreme” which requires being retested intraday. A downleg could have gotten underway without neutralizing the retest, but only if started earlier this week – now it’s too late, and a premature downleg isn’t likely to get very far. However, fulfilling the Globex trend extreme’s retest first would allow a durable downleg to begin.

Indicators and Internals.
RSIs were simultaneously oversold at Tuesday night’s 964’00 low. It was retested to within almost 1 point Wednesday, inhibiting repeated attempts to rally away from it. That might be close enough for horseshoes, hand grenades and Globex to consider the retest complete. But its test of the 963’50 area did further chip away at support there, as if there were any left to chip away.

Thursday’s opportunities.
Wednesday’s note auction didn’t go off well and it did impact price action for most of the afternoon. The 7-year goes off Thursday, and the same or different results should be influential either way. That’s after getting past Jobless Claims pre-open. Once again, the “ineffectual pessimism” has an opportunity to produce a temporary probe of the week’s overnight highs, where a reversal down would still be likely. Any early rejection of Wednesday’s late rally would be bearish near-term.

Yesterday in this space I defined the past week’s trading range as 968’50-976’50. Wednesday’s late surge extended past the close to probe the range’s upper-end by 2 ticks. Above 978’00-979’00 buyers start gaining traction for a retest of the week’s overnight highs. But opening or sliding under 968’50 would put the detour to 954’50 into play, first. [/pay]

[pay]Pattern notes.
Hurry up, and stop. It’s now Day #13 since July 13’s first up-day in a sequence that has only two modestly negative closes. The Rubber Band setup says S&Ps have been stretched to their breaking point, or to their breaking back point. The market is at its most vulnerable to reacting to the stretch either like a slingshot, or by the stretch’s force snapping the rubber band’s resistance.

Yet, price has only ranged 968’50-976’50 since Thursday afternoon. Probes of either end of the range haven’t gained traction to slingshot back down, or to snap up. The last two sessions were “ineffectual pessimism” – gapping down and ranging exclusively in negative territory, but not letting sellers gain traction. Buyers are tired, but sellers aren’t taking the bait.

The Rubber Band effect is all but dead. It still has a chance if tomorrow’s open gaps under the range’s lower-end and extends down sharply. An opening or pre-opening surge that is quickly or immediately overwhelmed by more substantial selling would also be consistent with the setup resolving down. An immediate surge that doesn’t look back would be credible for resolving the setup upward.

Otherwise, sellers will have failed to exploit buyers’ hesitation. This would probably make the market suck in buyers to fill the void, perhaps to retest the week’s 984’00 “new Globex trend extreme.” But there is no predictability for whether those buyers extend higher very long before reversing back into the range.

Indicators and Internals.
Simultaneously oversold RSIs during the formation of Tuesday’s 966’00 low make the level’s eventual retest likely. The amount of selling pressure required to produce the technical reading is usually preceded by bottom-fishers, not durable buyers. The 12-point reaction went on to new afternoon highs where RSIs became simultaneously overbought, which was retested already to within almost 1 point.

Wednesday’s opportunities.
Beige Book data in the afternoon can influence price action initially. It can also paralyze price action beforehand. But it’s not generally capable of stalling the open’s volatility from settling. So, the morning’s bias is likely to persist through the noon hour. An early or overnight probe of higher highs that turns negative, or a dip that recovers, should produce trending. If a third consecutive day of “ineffectual” anything starts shaping up, I’ll expect an afternoon false break and reversal.[/pay]