Market Wrap

[pay]Pattern notes.
Friday’s price action changed the analysis, opinion and parameters not one bit. Sellers were unable to regain traction, and buyers were unable to exploit it. The morning’s pessimism kept alive potential to probe a higher high, whose rejection was limited by quarter-end influences.

The session dripped with pessimism. An opening gap down, a probe under the prior afternoon’s lows, ranging exclusively in negative territory. Several minutes probing Thursday’s prior highs during the irrelevant last half-hour didn’t constitute optimism. The “ineffectual pessimism” retains the potential – if not the likelihood – for probing Thursday’s highs intraday Monday.

The end-o’quarter portfolio window dressing has become much less influential. Quarter-end derivatives might have a momentary effect Tuesday. And then the impending three-day holiday weekend will begin inhibiting sponsorship of a new leg. If either buyers or sellers push price beyond its recent range, their effort should obvious by Tuesday’s close. Because it may need to end by Thursday’s open.

Starting the week on a sour note would have to be pretty sour to extend down meaningfully. S&Ps have ranged within an 8-9 point band since noon Thursday, and trending doesn’t start from a standing stop. So an early drop Monday could have the most bullish resolution, while initially surging would stretch the rally’s rubber band tightly.

Indicators and Internals.
RSIs were simultaneously overbought during the formation of Friday’s last-minute high. This setup at almost any other time intraday would make any sell-off likely to recover. That continues to be the premise, anyway, but a gap down under prior lows would invalidate this case for it.

Monday’s opportunities.
No econ reports will influence the day’s price action. Between this, and the holiday-shortened week, a lot of other reports will be crammed into the week’s remaining three days. An opening surge would still target 920’50, and pullbacks might have room down to 910’25 before considering whether momentum has reversed down. Even then, “lower prior highs” at 905’00 could be probed by a couple of points as support, and still retest Friday’s highs. Regardless, this particular Monday’s opening volatility might be predictive of the week’s ability to trend.[/pay]

[pay]Pattern notes.
Late sellers Thursday died a quick death, the same as the open’s sellers. For the open, it was a push down to the morning’s 891’00 bias-down signal that never gained traction for a break, and whose bounce recovered above its limit. Before the close, it was a probe under the 911’00 pullback limit that started too late to be credible, bouncing back to session highs.

Sellers had already lost traction, both with Tuesday’s recovery back above the prior session’s lows, and with Wednesday’s round-trip that bounced off of Tuesday’s highs. Buyers hadn’t gained any traction, but it was sellers who had most recently failed to trend.

Buyers were attracted by the overnight high at 908’50 and by the open gap back to last Friday’s 913’25 close, although neither required a retest (the overnight high was itself a retest of Wednesday’s high, and Friday’s gap was created by gapping down under prior lows). Regardless, each attraction is now neutralized.

Thursday afternoon’s bias-up environment never reached its 920’75 target. Its test remains outstanding since no prior low gave way as support.

920’75 will remain in-play Friday until it is met, unless the open gaps under Thursday afternoon’s 910’00 area lows. By the way, in case you’re wondering, that low printed during the session’s last half-hour, so gapping down under it wouldn’t signal a session-long decline. But only Wednesday’s “lower prior highs” around 905’00 would slow or prevent resuming the decline to new lows for the week.

Indicators and Internals.
All divergences Thursday were fulfilled, and the most recent trend extreme were accompanied by non-confirmations. Technicals left no unfinished business for Friday to resolve.

Friday’s opportunities.
There is room down to the 910’00 area before sellers start gaining traction, especially during the open’s first 15 minutes of volatility. There’s probably no reason to visit the area any later unless a deeper pullback (905’00?) is being attempted. Or unless the 920’75 target has been met already. Consumer Sentiment at 9:55 could provoke a turn in market direction if 920’75 was already met. Exceeding 920’75 early enough could immunize the balance of the session from selling pressure, perhaps even trigger a short-squeeze into the weekend. [/pay]

[pay]Pattern notes.
A close under 894′00-895′00 Wednesday would have trapped the morning’s buyers and pointed down Thursday. A close under 891′00-892′00 would have made that resolution likely to begin by gapping down. Both parameters were tested before the close, and both parameters held as support through the close. Sellers gained no new traction.

A close above 897′50 would have begun signaling that buyers were gaining traction from the afternoon drop. The close was still testing 897’50, so there is no increased likelihood for gapping up Thursday.

So, neither buyers nor sellers gained traction. Tuesday’s signal that sellers had lost traction was essentially proved on Wednesday. Expectation that buyers wouldn’t gain traction was also proved out. The week-long decline had begun attracting end-o’quarter portfolio window dressing, which is just real enough to absorb selling, but not real enough to produce a durable rally leg.

Indicators and Internals.
Simultaneous positive divergences at Wednesday’s low did produce almost a 7-point bounce into the close. The setup doesn’t require any further gain to prove itself. And having closed at a bounce target (897’50), there is no unfinished business above to held recover from breaking under the bounce’s 891’00-892’00 origin.

Thursday’s opportunities.
The end-o’quarter portfolio window dressing can still influence Thursday’s session. So long as any interim weakness holds the 894’00-895’00 area, there’s potential for attacking Wednesday’s highs, perhaps even probing them up to 907’50. That or something like it would be expected unless Thursday’s open were to gap down under 891′00-892′00, which would target new relative lows down to 881’00, and then much lower Friday. [/pay]

[pay]Pattern notes.
After the morning’s recovery from new lows, Tuesday afternoon’s ranging walked the tightrope between optimism and pessimism. Despite ranging exclusively in positive territory above 888’00, the afternoon never probed prior highs – not the opening high, the overnight high, nor Monday afternoon. Taken out of context, this might seem like pessimism. But the context in this instance is that the afternoon never returned back into negative territory, and that’s optimism. So, the afternoon qualifies as “ineffectual optimism.”

Chipping away at resistance would have cleared the way for an immediate rally Wednesday. That work can be supplanted by gapping up above prior highs, if that gap up can be maintained. A gap up that is maintained above Tuesday afternoon’s highs would also trigger a session-long rally setup. Not maintaining a gap up could slide quickly down to new lows. A gap up Wednesday would be suspicious anyway, since Tuesday afternoon’s high didn’t print until the last last half-hour.

If buyers don’t regain control Wednesday morning, the bearish fallout might still be limited. However small the margin, Tuesday’s new relative lows did recover to close in positive territory. It doesn’t mean buyers gained traction, but it does undermine sellers that sponsor another dive to new lows. If sellers don’t regain control Wednesday, the fast-approaching end-o’quarter portfolio window dressing could marginalize sellers through the weekend.

Indicators and Internals.
Tuesday afternoon’s narrow range saw technicals extend once each in either direction, and only among the 1-minute indicators. Otherwise, the lack of volatility left no unfinished business.

Wednesday’s opportunities.
Whether diving immediately at the open, or after failing a bounce up to 894’00-895’00, sellers might be no more productive than to retest Tuesday’s 884’25 low by 3 points. A gap up maintained above 894’00-895’00 through at least the 10:00 econ report (New Home Sales) would get a benefit of the doubt for extending higher. It would also get a tight stop, being ready to enter short on a failure. [/pay]

[pay]Pattern notes.
Was Monday’s drop a breakout, or was a downleg already underway? This would tell us whether the decline requires a lower close Tuesday, i.e. whether closing lower Tuesday would confirm a fresh breakout, i.e. whether not closing lower would suggest sellers might be too extended. Reverse-engineering from a bearish opinion would tell us to sell bounces if offered the opportunity.

There was a multi-session bounce underway through Friday (a session’s high exceeded the prior session’s high). But Friday’s high didn’t recover last Monday afternoon’s prior high, so there was no actual pattern for this Monday’s break to break. The multi-session bounce (Thursday and Friday) only paused the decline – it wasn’t a detour.

Monday’s open gapped down through prior lows, and extended down throughout the day. Lower lows are all but required, although not necessarily the next session. If not, then the next session tends to bounce only modestly. Immediate lower lows tend either to bottom quickly for an intraday corrective bounce, or else rival the prior session’s decline. This latter, more bearish resolution tends to begin by gapping down.

Two targets under Monday morning’s lows were 888’25 (highlighted yellow on the second chart) and 881’25 (highlighted red). The first target was finally met by a last-minute break, and its test held as support. Further weakness Tuesday down to 881’25 would likely produce a bounce, unless the open gaps under it.

Only a gap up above 894’00-895’00 would actually detour the decline, perhaps up to 905’00. Regardless of its degree, follow-through would be temporary since a gap up would still leave unfinished business at the gap open down at Monday’s 888’25 close. The false break from May’s pattern has been retraced back into the pattern, making the ultimate and eventual break under its lows only a formality.

Indicators and Internals.
Every chance for RSI to diverge positively Monday was negated by higher lows, where a lower low was needed. Every extreme oversold 3-minute RSI avoided printing with the most recent price low by a single bar. Only simultaneously oversold 1-minute and 3-minute RSIs doomed any intraday bounce to failure. Monday’s drop was plain and simple selling, not reliant upon tactics to keep refueling. There was no unfinished business at the close.

Tuesday’s opportunities.
Several econ reports are scattered through the open and the FOMC meeting begins. The President gives a press conference at 12:30, while more debt is auctioned at 1:00. Anxiousness ahead of these events probably didn’t exacerbate Monday’s drop, but they could save it Tuesday. Gapping down to and through 881’25 would reflect too much irritation to react well in almost any event. Otherwise, not gapping down would be vulnerable to bouncing intraday.[/pay]