Market Wrap

[pay]Pattern notes.
Monday’s pre-open recovery absorbed an overnight drop, and the intraday rally also required absorbing a post-open drop. The drop bottomed 2 ticks short of the morning’s 870’75 bias-down signal (circled red on the first chart), put into play by the no-bias environment having failed a test of the 879’00 bias-up signal. The pullback was predicted by the pre-open pattern (highlighted yellow), although it normally continues reversing down.

I can’t assume that the bias-down signal’s test was fulfilled, despite the balance of the session having rallied 26 points. But I can assume the intraday rally was excessively optimistic, and not just for having begun 2 ticks short of the low’s target.

Other optimistic indications include the timing of the rally was inappropriate, originating during a no-bias environment. Two brief consolidations along the way up (defined in green) were short and shallow, barely touching a relevant support (if at all) before surging higher. Even the afternoon’s channel (defined by dashed lines) reflected optimism by its upward slant.

But the optimism has yet to be proved ineffectual. The afternoon’s no-bias environment did hold repeated tests of the 893’25 bias-up signal, ultimately closing above it. The lower chart depicts the past week, and Monday’s test of last Monday’s high, filling the outstanding gap back to its close. This was already a test of the prior week’s close (both extended levels highlighted yellow), so there wasn’t a requirement to retest this area again.

The gap’s test at 896’00 held on a closing basis, so buyers might have expended their last available energy. The lower level at 893’00 must be rejected through Tuesday’s open to confirm that buyers have lost traction. Back under 889’25-890’25 would signal that sellers had gained traction in their place, targeting a complete retracement of the rally from Sunday night’s 865’50 low.

Rallies can extend on nothing more than hope. It’s all that’s fueling Monday’s gains, but sometimes that’s enough. For awhile, at least. Not rejecting the highlighted 896’00 resistance could next target 907’00. The resolution would still likely be down.

Indicators and Internals.
RSIs were simultaneously oversold at Monday morning’s pullback low (circled red/green in the top chart). Sellers capable of producing this condition aren’t typically late-stage sellers. Buyers attracted to this condition aren’t typically durable buyers. So, rallies begun from this condition are normally retraced entirely, and ulitmately rejected by a downleg. The simultaneous negative divergence at Monday’s last-minute high came after position-squaring’s influence subsided, so extending the rally might depend largely upon absorbing any initial pullback.

Tuesday’s opportunities.
Lots of metrics will be available in the morning through various retail sales data. PPI is the day’s highest profile report. Monday afternoon’s late surge had potential to 899’50, and it was a little surprising to not make it. An early test Tuesday that quickly fails could give sellers traction, since buyers lost traction by slipping under 896’50 into Monday’s close. A recovery maintained above 899’50 would allow buyers to regain traction. [/pay]

[pay]Pattern notes.
Friday afternoon’s four-hour, 5-point range was triggered by noon’s recovery above 872’25 that robbed sellers of their traction. This opened the door for buyers to gain traction, but it doesn’t mean they did. Follow-through peaked 4-1/2 points higher, immediately upon touching the lowest tick of Thursday afternoon’s range. That’s not buying pressure.

The afternoon’s 872’00-877’00 range was narrow. Narrower still, compared to the morning’s wild round-trips between 869’00-880’00. Only the afternoon’s latter half challenged 872’00 support. The last half-hour faked a short-squeeze that closed back within the range.

Thursday’s ineffectual optimism was likely to gap down and then trend down sharply intraday. Overnight lows satisfied the “down sharply” requirement, and the open’s volatility satisfied the trending. But the shallow recovery left open the potential for sellers to make another run at resuming the decline.

As with Wednesday and Thursday’s open, an immediate recovery or gap up above 881’00-883’00 would be the least to expect from buyers capable of overcoming the downtrend underway. Sellers regaining control are likely to start by dropping under 871’50 to test 866’50, and any lower would set a nasty tone for the week.

Indicators and Internals.
Technicals left no unfinished business for the new week. The 3-minute RSI barely registered any extreme strength or weakness after the open. The 1-minute did become overbought a couple of times Friday afternoon, but nothing durable without the 3-minute’s participation.

Monday’s opportunities.
No econ reports are scheduled Monday, but the quarterly earnings announcements start dribbling in. The market isn’t bouncing off of lows – they’re still fresh and relatively nearby. And neither is the market chipping away at resistance. The environment does not appear to have discounted any negative surprises.[/pay]

[pay]Pattern notes.
Wednesday afternoon’s short-squeeze could have extended into a bigger rally by immediately recovering Thursday above Wednesday morning’s highs. That didn’t happen, but not for lack of trying. The open gapped up, the session traded entirely in positive territory, probing prior highs intraday. Buyers did not gain traction, since the close wasn’t above the prior afternoon’s high, or the current day’s morning high and noon hour low.

This “ineffectual optimism” is is temporary counter-trend action, part of a correction. It might be the entire correction. Thursday’s late, tempered weakness left selling pressure pent-up overnight. If the pent-up pressure is sufficient to resume the decline, then selling should be obvious Friday morning. The open would either gap down, or immediately fall from a flat or higher open, and then extend down sharply intraday, under Wednesday’s the 866’00 lows.

Buyers would regain control by immediately recovering above the same 881’00-883’00 area they failed to recover Thursday. Gapping up above Thursday afternoon’s 884’50 high would signal a session-long rally, its objective being to fill the gap back to 893’50-896’00.

Resuming the decline to close at new relative lows would be likely to continue dropping through Monday’s open. Just ranging sideways would be likely to range sideways through Monday, still vulnerable to resuming the decline Tuesday. A close above 881’00-883’00 can still trigger a multi-session rally, so long as Friday’s gain had not already filled the gap back to 893’50-896’00. What the market does at this stage of the pattern going into the weekend is much less important than what it leaves undone.

Indicators and Internals.
Thursday’s 3-minute RSI avoided becoming extended in either direction. The afternoon’s last-minute drop saw RSIs diverge positively. That’s too late to reflect credible, influential participants, at least not permanent ones.

Friday’s opportunities.
A modest bounce overnight to 881’00-883’00 wouldn’t require retest intraday Friday before reversing down. But its recovery could marginalize sellers for the day. Almost any early weakness in this pattern would be likely to ignore Thursday morning’s lows on the way to new lows for the week. Falling early enough would make the week’s lows much less likely to hold as support. The day’s highest profile econ report is the 9:55 Consumer Sentiment, timing that tends often either to reverse or to accelerate any initial trending already underway. [/pay]

[pay]Pattern notes.
Wednesday afternoon’s short-squeeze lived up to its name, mostly the “short” part. Sellers had lost traction when the mid-afternoon retest of the noon hour’s low down to 865’25 was quickly rejected. The squeeze took its time, but finally touched 879’00.

A drop through the close reached 873’00, which is basically Wednesday afternoon’s “lower prior highs.” It was also the last relative high prior to the noon hour’s tumble. The 873’00 area would have likely held as support if attacked from above Thursday morning. It’s not in that position anymore, since that’s where Wednesday closed. Opening weakness Thursday would not need to negotiate 873’00 because sellers would be starting there.

Price did firm 3 points after the close on favorable earnings from Alcoa (AA).  The stock gained 5%. Wednesday’s short-squeeze neutralized a lot of selling pressure, but the last-minute dip also neutralized the squeeze’s overbought condition.

The 866’00 area was the maximum potential downside target of signals triggered last Thursday. It was achieved by slicing through May’s prior lows, making those prior lows likely to be tested as resistance well into the 870‘s. Wednesday afternoon’s bounce did that, and the session still closed negative and under the prior session’s lows. Only a gap up can turn momentum higher from this stage of the pattern, and then only temporarily.

Indicators and Internals.
RSIs were overbought simultaneously at the 879’00 peak of Wednesday afternoon’s short-squeeze. It was already the session’s last 15 minutes, undermining the signal’s relevance. But I would still expect the high’s retest Thursday morning if sellers aren’t obviously in control at the open.

Thursday’s opportunities.
Maybe the decline is so vulnerable to a rally that a bounce’s catalyst could simply be not extending down overnight. Back above 881’00-883’00 would be likely to extend higher intraday, but otherwise act to resist any strength. Any weakness at Thursday’s open isn’t likely to be only slight, anda  break under 866’50-868’50 could trend down sharply through the day. [/pay]

[pay]Pattern notes.
Here’s one more look at the bigger picture, while the bigger picture still depicts topping. One more day should either make the downtrend obvious, or else show sellers losing traction. And sellers losing traction at this stage of this pattern might as well be bullish.

Sellers losing traction here would be bullish because there is otherwise so much in their favor. The third consecutive bounce failing. The latest bounce’s low giving way as support. A last-minute surge Monday that was invalidated almost immediately at Tuesday’s open. And inappropriate optimism as the current drop stuggles not to touch May’s prior lows.

This not a Head & Shoulders, so a break under the “neckline” won’t be required to accelerate the decline’s pace, or eventually to be retraced. Indeed, the breakout probably already occurred Thursday. The question is whether a corrective bounce will come that much sooner – e.g. upon testing the 866’00 area – or whether the downleg will unfold relentlessly.

Indicators and Internals.
RSIs printed low oversold levels as the last hour’s first lows printed. Lower lows followed into the close, and their RSIs were also oversold, albeit not at their lowest. Despite price firming to nearly 880’00 into the close, the 875’25 low requires retesting.

Wednesday’s opportunities.
Tuesday’s close was very vulnerable to extending down at some point overnight to trigger a gap down at Wednesday’s open. A bounce isn’t required, but one would likely test 883’00, and potentially 889’00.[/pay]