Market Wrap

[pay]Pattern notes.
Sunday night’s slide left lows that required a retest intraday. And they were retested intraday, at the 882’00 mid-morning low. It was no surprise that this leg of the retest wasn’t going to extend lower, since technicals had improved into the new low. It wasn’t really that surprising for the retest not to extend lower intraday at all.

Monday’s last-minute 7-point surge to 894’25 was somewhat surprising. But that’s more a testament to its timing than to its sponsorship. A dip into the last half-hour had stopped at 887’25 where any lower would have extended the morning’s low. Sellers opened a door without going through it, so the market sucked in buyers to fill the void. The distinction is important: Monday’s last-minute surge was not from buyers pushing higher, but from sellers getting squeezed. To underscore this message, the squeeze added 2 more points after the cash session close.

Sellers hadn’t lost any traction until then, but neither had they gained new traction. Buyers had an opportunity to form “ineffectual pessimism” – gapping down to new lows, trading exclusively in negative territory and under prior lows, yet closing above the morning’s lows. The setup isn’t a buy signal, but it tends to precede a gap up. Monday’s last-minute surge neutralized the pessimism, rendering the setup moot.

So, Monday’s sellers chipped away throughout the day at two-week old prior lows. The last-minute surge peaked at the resistance of Thursday’s “higher prior lows.” Delaying the squeeze until so late has limited its potential follow-through to 902’00, but any higher would target 911’00. Meanwhile, immediately unwinding the last-minute squeeze would simply resume the decline, both with a vengeance, and also with not much support before reaching 866’00.
Indicators and Internals.
Technicals underperformed at Monday’s last relative high, just before a 4-1/2 point drop that preceded the last-minute short-squeeze. Technicals improved on the squeeze, but still underperformed, underscoring that the squeeze was just that and not the beginning of another drawn out recovery attempt.

Tuesday’s opportunities.
Retail sales data starts out the day, with two econ reports comprising the session’s econ reports. If sellers try retaking control by gapping down, they would likely fail without breaking the 888’00 area, and probably succeed if also managing to take out 885’00. Pullbacks otherwise have room down to 889’50-892’00 without disrupting the squeeze’s potential for extending up a little further.[/pay]

[pay]Pattern notes.
Third times aren’t always so charming when it comes to trending attempts. Not that June’s first two bounces were very pretty. But last week’s rejection of June’s third bounce could get very ugly very soon.

Two consecutive bounces had resolved in lower lows, dropping under their own origins. Now the third consecutive bounce is on-track for doing the same. And it’s not as if the failures weren’t justified; the character of each bounce’s origin was noted for attracting only temporary buyers, even before their bounces began. The latest bounce originated with similar characteristics. Thursday’s break lower seems to be proving out the warnings seen in the prior two sessions’ highs.

June’s dashed trendlines identify each of the three bounces – each of their origins, and each of their failures. The highest pullback bounced off of May’s highs. Its eventual break bounced upon retracing May’s two last false breakouts, then fell to the origin of May’s last upleg. This most recent bounce almost gained traction retesting the prior bounce’s peak, entering the weekend with a new break underway.

May’s dashed trendlines identify the Descending Triangle whose break higher was predestined to fail, before reversing down more substantially in the opposite direction. The most recent bounce began optimistically short of actually touching the Triangle’s lows. The bounce formed prematurely, but delayed its peak. Buyers were too impatient at the latest bounce’s low, and now seem to have been too patient at its high.

Thursday’s volume wasn’t exactly breakout quality, although it was relatively strong for pre-holiday weekend trading. Regardless, this pattern doesn’t require significant volume expansion until breaking under its 888’00 two-week old low close. Thursday’s cash session stopped several points higher, optimistically, and even a post-close dive stopped 1 point short of even touching this objective. Globex trading into Friday morning bounced, but still ended unchanged from Thursday’s close, hardly rejecting or repairing its damage.

Indicators and Internals.
Both 1-minute and 3-minute RSIs entered a narrow range at noon, and remained in neutral territory until the last hour’s sudden dive. Two-three positive divergences had already been ignored, so lower lows remained likely. But starting from a standing stop doesn’t tend to persist. The break did correct itself with a bounce back to the range’s “higher prior lows.” Friday’s bounce held a similar test, but has yet to resolve in a lower low. This remains likely since RSIs were oversold simultaneously at Friday’s close.

Monday’s opportunities.
For all of its hesitation at Thursday’s cash session and post-close low (and Friday’s Globex lows), there isn’t much more support before touching May’s ~875’00-876’00 prior lows. For all the hesitation to avoid extending down and actually touching May’s prior lows, there is actually a higher likelihood of gapping down through prior lows and extending down sharply intraday. This risk can be allayed considerably by recovering 898’00, which could trigger a bounce initially targeting 909’50.

The next lower obligatory support is around 866’00, but a lot of selling pressure would be satisfied upon testing 851’00. It’s pretty scary how little support there lies any lower before 720’00-730’00 (6950-7035 basis the Dow). Such a move would require massive disappointment. This week’s massive Treasury auctions are one opportunity. G-8 focus on replacing the $USD is another. But the failure of June’s third consecutive bounce effort is reason enough.

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[pay]Pattern notes.
Wednesday’s session didn’t need to test Monday’s 924’00 highs as resistance. Simply attacking it intraday without actually touching it would have reflected pessimism. This pessimism would have been bullish from a contrarian perspective, pre-discounting a negative reaction to Thursday morning’s econ reports. It wouldn’t have marginalized sellers, but that’s not the same as a sell signal.

Instead 924’00 was probed pretty thoroughly, by at least 4 points. Then it was tested as support, and finally buyers tempered their enthusiasm. Bad timing. Rather than resolve up, the return to 924’00 ranged narrowly through the noon hour and beyond. A mid-afternoon dip under 924’00 only slid lower into the close, eventually piercing 918’00.

Dipping into Thursday morning’s econ reports was less contrarian than the open’s hesitation could have been. Perhaps a late-afternoon or last-minute dive would have been pessimistic, but dropping for seven straight hours reflected more about sellers than about buyers. A favorable reaction Friday morning is still possible, just much less likely.

Indicators and Internals.
Technicals never really extended Wednesday, making it difficult to counter. This remained true through the close, so there is no unfinished business to resolve in either direction.

Thursday’s opportunities.
Closing decisively under Monday afternoon’s 920’00 lows would have given sellers traction. It was still in the process of being tested as support, so a reaction up remains possible. Recovering 924’00 through a relevant timing window would once again prevent sellers from regaining traction – and, once again, that won’t necessarily default to rallying. Meanwhile, the gap back to Tuesday’s 916’25 close is near enough to be influential. Any lower could slide down a slippery slope to and through Tuesday’s 908’25 lows.

The three-day holiday weekend already skews normal timing windows. The econ reports’ data dump could wreak havoc. It wouldn’t be surprising if the session only ranged sideways – widely, but sideways. Trending early enough could make significant progress before things slowed ahead of the afternoon slowdown. [/pay]

[pay]Pattern notes.
Tuesday morning’s dive book-ended Monday morning’s surge. The balance of each session was similar in that neither extended. Monday’s pause ranged narrowly, so Tuesday morning’s attempt to resume the rally found buyers’ energy depleted. Tuesday afternoon’s bounce refueled its sellers, in case Wednesday’s market wants to resume the decline.

The bounce needed to hold 916’00 to avoid buyers gaining traction, and its test did stop the bounce. Damage done to the rally’s chart wasn’t mended by the close. Monday’s breakout attempt was rejected instead of confirmed, and the support of Friday’s lows was chipped away.

Wednesday might yet try to resume the rally. And it might yet succeed if Wednesday’s close were to exceed 924’00. The attempt is possible – almost anything is possible with volume starting to evaporate ahead of the three-day holiday weekend. But a recovery above Monday’s under-belly, the 920’00-922’00 “higher prior lows” isn’t likely at all.

Indicators and Internals.
Technicals never reflected much selling or buying pressure either off of Tuesday’s lows. So, it was difficult for any trending to begin. But it does help to identify that the afternoon’s gains were a reaction, not accumulative.

Wednesday’s opportunities.
The holiday-shortened week does skew some of the timing, so new lows for the week aren’t as assured as they would be in this pattern at almost any other time. But the timing of Tuesday afternoon’s also reveals it to be only  a bounce, and not accumulation or the start of a new rally leg. A gap up above 918’00 would repeat Tuesday afternoon’s flat-to-higher ranging. A break under 911’50-913’00 would be likely to extend down sharply intraday. Thursday econ calendar is a rare line-up of quantity and gravity, so I’m curious to see whether Wednesday afternoon’s price action ahead of its barrage becomes paralyzed with anxiousness. [/pay]

[pay]Pattern notes.
Monday’s Trading Plan didn’t have much to add since Friday. Just turn Monday’s upside-down to get a feel for Tuesday. Friday’s “ineffectual pessimism” made likely a probe of higher highs. Since Monday’s probe of higher highs quickly peaked, its complete retracement is now all but required – whether or not preceded by yet higher highs.

First, the likelihood for a complete retracement… Thursday and Friday’s “lower prior highs” at 918’00 lie just 3 points under Monday’s 921’00 close, and should be tested as support regardless of the eventual resolution. The test could bottom upon testing the level of Friday’s 913’50-914’00 close. But Monday morning’s 911’50 low also requires an eventual retest (see Indicators and Internals section below).

The shallower dip to 913’50-914’00 would not be deemed complete until recovering above 923’00. A deeper dip back to Monday’s lows at this stage of the pattern would be unlikely to recover at all, especially if initiated by gapping down under 918’00.

As for extending higher before reversing down… Monday’s narrow six-hour ranging indicates thin buying. But not dipping intraday just a couple of points suggests the pattern isn’t ready to reverse down. The base is too narrow to launch a durable upleg, but a failed higher high won’t be signaled until breaking back under 921’00. Quarter-end influences could squeeze higher highs higher still in bubble-like fashion.

Indicators and Internals.
Monday morning’s 911’50 low requires an eventual retest because both 1-minute and 3-minute RSIs were oversold during its formation. The most oversold 3-minute RSI also accompanied the actual low price bar. The buyers attracted to this setup are not durable, regardless of their productivity. The rally’s steep slope, its sudden stop, and the extended range all confirm the sponsorship ran dry.

Tuesday’s opportunities.
A lot of econ reports are coming. Surprises to either side are possible. More important is whether the current highs have discounted too much of either, or not enough. The mood revealed Tuesday morning might be more revealing than what price limit is exceeded or held. Monday’s opening had a chance to reveal market direction, too, but only ranged narrowly through the day. This price action isn’t likely to repeat immediately. [/pay]