Market Wrap

[pay]Pattern notes.
Friday’s gap down extended lower only long enough to hold a test of pre-open lows within 1 tick of the 931’00 bias-down target. Thursday’s high stopped similarly short of its 953’00 bias-up target. Anyway, Thursday’s cash session close at 940’00 wasn’t even touched until the last 90 minutes, by a single surge that quickly peaked at 942’50. It was later probed, and not rejected, but neither did it give way as resistance.

Despite holding its gains for awhile, the mid-afternoon’s surge into positive territory lasted too briefly to be relevant. And despite not yet retracing the late recovery, it originated too late to be relevant either. The first surge’s rejection fulfilled last Friday’s Gotcha! setup that identifies big money using rallies to distribute. This Friday wasn’t a great example since most of the session was spent in negative territory. But the premise remains intact, since buyers didn’t gain traction.

There is no unfinished business above. Friday’s highs held the prior week’s Mon-Tue highs at 945’00-947’00 (green dashed line in the upper chart). The rejection of the week’s interim high failed to recover above the prior week’s highs. The week’s new high close ended back under two weeks worth of higher intraday highs.

Two weeks-worth of uptrending support, with its three tests (circled in red) were followed by a fourth test Friday (circled green). It didn’t bother probing the trendline before bouncing optimistically off of it. Maintaining a gap up above 945’00 Monday would start to signal the optimism was growing.

There is also no support below. Friday’s late dip tested the intraday “lower prior highs” (highlighted green in the lower chart), neutralizing its support. The dip also probed uptrending support (circled red), neutralizing the support of every prior low that created the trendline – breaking it would serve as proxy to breaking its lowest point at 931’25, whose eventual break would be just a formality.

The combination of no unfinished business above and no support below makes Monday’s open vulnerable to gapping down under all of Friday’s range. The red uptrending support in the upper-chart is similar to the lower chart’s green uptrending support, but the red trendline’s lowest price is under 918’00. Monday could produce a sizable decline before the opening tick, unless the open gaps up above Friday’s highs.

Indicators and Internals.
The lower chart depicts Friday’s 3-minute RSI, which diverged negatively into the afternoon’s two highs. The 1-minute RSI also diverged negatively. The setup wasn’t too late to be relevant. But it can be rendered moot only by gapping up Monday above a prior relative high, which in this case is 945’00.

Monday’s opportunities.
Of three econ reports, the highest-profile is at the noon hour’s end. By then, either a gap up or gap down will be known. This pattern isn’t likely to remain inside Monday’s range without first trying to trend away from it intraday. A break higher might revisit last week’s highs without gaining traction. But there is little likelihood of recovering if sellers can make their presence known at the open. [/pay]

[pay]Pattern notes.
Sellers fed buyers yet more rope to hang themselves Thursday. The first half-hour’s opening surge up to 945’00 tried to extend higher intraday. Interim volatility both higher and lower gained traction only once, on the auction results coming out of the noon hour. The 953’00 bias-up target was met (within 1 tick) just 30 minutes later, and a drop from there greeted the last half-hour back at 945’00.

In other words, there was no net gain between Thursday’s first and last half-hours. This isn’t necessarily meaningful in a flat market, but it is significantly meaningful to confirming an opening surge. Opening surges seem hollow with nothing to show for an entire session spent probing higher highs. With the noose tightened securely, the trap door fell open after position-squaring subsided, and the drop resumed.

Thursday’s opening surge was made more meaningful by its retest of last Monday-Tuesday’s highs in the 943’00-945’00 area. Closing any higher would have jeopardized last Friday’s Gotcha! setup, since one of its biggest elements was its rejection of those very same prior highs. The Gotcha’s influence remained intact also by erasing yet another session of intraday gains. This can persist indefinitely in theory, so long buyers maintain no traction. In practice, this will eventually end, and it will end more dramatically to compensate for the delay.

Indicators and Internals.
RSI made new low oversold readings while price was falling to new relative lows into Thursday’s close. Almost any other timing intraday would have provided bounce protection, meaning any recovery attempt would likely fail. It’s more of a polite suggestion when occurring in the closing minutes. Already, the drop extended into and out of the cash session close, touching 937’00 before the Globex open.

Friday’s opportunities.
There isn’t much room to bounce, not even overnight, not if sellers are retaking control for sliding into the weekend. A bounce isn’t required, but should hold the 943’00-944’00 area. Back above 945’00 could immunize the session from selling pressure. There’s room down to 931’00 before sellers gain more traction, but only obligatory support below there on the way down to 907’00. Of two scheduled econ reports, Consumer Sentiment at 9:55 has potential to trigger volatility. This being a Friday, the morning’s bias should persist through the noon hour. [/pay]

[pay]Pattern notes.
The extended sell-off into Wednesday’s Beige Book discounted more pessimism than the news could justify. A bounce was slow to begin, but it targeted 934’00-936’00 (basis Sep). There was an extra dip under my 826’00 pullback limit, but eventually the bounce target was tested thoroughly.

Turnabout is fair-play. The slide into Beige Book’s news found sellers over-extended at 923’00. The last bounce put the market in a similar position as at the low – having fully discounted optimism. The bounce’s target was calculated from swing measurements, so perhaps it’s only coincidental that it retraced all of the last downleg, and no more.

The Gotcha! setup already warned that bounces are being used by big money to distribute. A bounce has been rejected every day this week. Wednesday’s late bounce offers another opportunity to show that buying pressure is thin. The failed opening surge routine has gotten kind of old, so an opening dip Thursday would be credible for extending down.

Not immediately declining at Thursday’s open should trade higher, and not flat. A new downleg has been stymied by only one remaining element, which is to actually close under support. Another down day Wednesday’s might be sel-explanatory.

Indicators and Internals.
Technicals improved only grudgingly into Wednesday’s closing bounce. In some instances they diverged negatively. There has been no reward for the sponsorship that is responsible for the technical situation, and there is no outstanding target above.

Thursday’s opportunities.
Jobless Claims highlights the morning’s econ reports. Wednesday’s close was mid-range for the week, but an immediate drop back under the afternoon’s ~923’00 lows would put aside any news and other sideshows in favor of unbridled selling. Otherwise, the ranging might yet include a retest of recent highs.[/pay]

[pay]Pattern notes.
Tuesday’s afternoon’s new session high at 947’00 was rejected to close back under 943’00, positioning the market to resume Wednesday where Monday morning’s decline had left off. My last comment noted that S&Ps dipped a little further – at that moment, only 1-2 points. This pessimistic discount would undermine the decline’s resumption, reflecting selling pressure that the cash session did not.

S&Ps slid another 6 points to 837’25 through the Globex open, widening the discount that would attract price higher. At this moment, three hours past midnight, that discount has already attracted price higher. And higher, to 950’50, probing last Monday and Tuesday’s prior highs and Friday’s 950’25 opening tick. This also threatens Friday’s 952’00 post-open high and the pre-opening surge’s 957’50 peak.

Friday’s Gotcha! setup already identified announced that intraday rallies were all about momentary distribution, making bounces likely to fail through the close. Tuesday’s failed rally attempts put that to the test, and passed. Assuming these overnight gains hold up, there’s a bigger test in store for Wednesday. Pullbacks have room down to 947’50-948’50 before suggesting the overnight gains won’t hold up.

Tuesday’s session gapped up, only briefly visited negative territory, and all intraday probes of prior highs became failed rally attempts. The “ineffectual optimism” tells the same story as the Gotcha setup. Rejecting the overnight gains would be yet another version. Buyers don’t gain traction by probing a prior day’s high intraday and then failing to close above it. So, closing above any prior high that is probed would start to give buyers traction. Until then we’ll continue looking at intraday rallies for selling, and buy intraday dips until one isn’t accompanied by technicals diverging positively at support.

Indicators and Internals.
Speaking of which, the 1-minute RSI diverged negatively overnight for the rally’s latest 3 points. That’s not a sell signal, but it does reflect some recognition of the resistance at 947’00-950’50, between last week’s initial highs and Friday’s open. The overnight surge is still connected to that pattern, and not responding to some new influences.

Wednesday’s opportunities.
The morning’s econ reports aren’t very high-profile. And then there’s the afternoon’s Beige Book at 2:00. With anticipation growing for a potential rate hike, the data will be controversial, and likely to generate several reactions. The timing window leading up to its announcement might be much less inhibited than usual. [/pay]

[pay]Pattern notes.
Buyers hadn’t gained any traction by 3:20, so the surge afterwards  – although steep and sizable – should not be durable. The 3:20 origin wasn’t entirely inappropriate for a durable recovery, just mostly. Anyway, it was probably no more than noise before the Dow Industrials switching out a couple of components, all the more reason for its gain not to endure.

Being too late to start, the surge was expected to hold any test of resistance through the close. And it did. From a standing stop under the morning’s highs, the first 9-point surge filled the gap back to Friday’s 941’00 close, then a 6-point surge probed 946’00. Then the cash session’s close dropped back down to 936’00.

Without the surge, Monday’s session was on-track to form “ineffectual pessimism.” Two intraday attempts to decline under 929’00 were each recovered through relevant timing windows, instead of remaining depressed and sliding. This created pent-up buying pressure that could have kept alive a recovery until Tuesday, the same as Friday’s stable afternoon kept alive the sell-off for Monday. But Monday’s buyers didn’t wait, and instead borrowed heavily against the buying pressure. Now there is no pent-up buying pressure available to help the surge endure overnight.

The session-long decline prevent positive territory from gaining traction and produced a drop into the close – albeit not quite into new session lows. And without recovering above last Monday and Tuesday’s 847’00-949’00 highs, the Gotcha’s trend reversal is valid.

Indicators and Internals.
Simultaneously overbought 1-minute and 3-minute RSIs at Monday’s high would all but require the high’s retest. Durable sellers don’t usually step in front of such strong buying. The high’s timing actually undermines buyers, but that doesn’t make the last-minute sellers any more credible. That said, delaying the drop’s resumption Tuesday would be likely to retest Monday’s high – and then some.

Tuesday’s opportunities.
The new bias signals will be similar to Monday, if not identical. There is no ability to trigger a session-long buy signal, since the last half-hour’s high was the session high. Any strength should be temporary, and resolved down by the close. That said, I would be uncomfortable selling early strength without having proof buyers had run their course.[/pay]