Market Wrap

[pay]Pattern notes.
Something big is coming. Friday fought like hell to avoid giving an obvious sign. To be waging such a fight at Friday’s levels is a sign in itself. True, Friday price action could be skewed by also being an expiration session. I’m not just discounting that; I’m counting on that. If Friday’s relentless selling was contrary, then more time would have been spent trapping shorts. For example, recovering from probes under bias-down signals instead of flirting with them, not waiting until the last hour beforeprobing prior lows.

Friday’s opening sequence twice tested its 886’50 bias-down signal as support through 10:15, the second time lingering long enough to invoke the grace period through 10:30. That 15-minutes should have either broken lower, or held. It rallied. Throughout. Several minutes later that gain had doubled to 9 points to 895’50. Despite seeming to reject the bias-down and put into play new highs, the market turned down anyway.

There are some characteristics about expiration sessions I’m willing to dismiss. One thing about them is everything. Sometimes the expiration influences can be contrary, which can be just as valuable, but often it is indiscriminate. That’s where I was headed Friday when the no-bias bounce was retraced entirely back to its origin. Earlier, actually, when 890’00 gave way. A pullback limit at 893’25 had already failed to hold, but that only told us the particular upleg’s momentum had ended. The break under 890’00 told us the particular direction was wrong, that the bias-up signal wouldn’t be tested, which was underscored by an 8-point slide into the noon hour.

This is where the market made a choice that tried to mask whether “something big is coming.” Noon hour noise could have served as a mask to hide a bounce for refueling sellers, but sellers kept on with it. Another bias-down signal at 881’00 barely escaped triggering, but sellers overcame that one, as well. New lows at 876’75  into Friday’s last hour formed an inverted Head & Shoulders whose target was met into the close.

Sellers did lose traction by not remaining under Wednesday’s prior lows, but buyers didn’t gain any. A gap up above 886’50 and quick recovery above 890’00 would put buyers back in control. More so, it would make Friday’s selling contrary after all, and last week’s selling corrective, with a new and powerful upleg gaining steam through the week. Otherwise, last week’s directional change should become more obvious by soon adding a steeper slope to its decline.

Indicators and Internals.
Two positive divergences in both 1-minute and 3-minute RSIs have yet to be productive. The first, at noon, barely firmed before extending down. The second, into the last hour, produced a bounce that peaked at its prior high instead of recovering it. Typically, this means the market’s facilitators are in touch with much bigger supply coming down the pipeline from the market’s bigger participants. The expiration session might skew this, which a gap up above 886’50 would suggest.

Monday’s opportunities.
A gap up above Friday’s 886’50 opening lows would rob sellers of more traction. Sellers could still regain traction by closing back under 880’00, but above 890’00 through any relevant timing window would start giving buyers traction for a steep week-long surge.[/pay]

[pay]Pattern notes.
Thursday’s session essentially trended up, while remaining within Wednesday’s range. It’s not really trending, although buyers were the ones expending their energy. Wednesday’s session was similar for trending early, and then ranging through the afternoon. Wednesday afternoon’s ranging was ineffectually pessimistic, probing new session lows without ever breaking lower. Thursday afternoon’s ranging was ineffectually optimistic, probing new session highs without breaking higher.

It was evident early on that Thursday’s session wasn’t going to cover new ground. It wasn’t necessarily the typical “drycleaners” day, but the chart offered nothing new except the passing of another day. Friday’s expiration day is likely to share the same characteristic, essentially ranging sideways, albeit much more choppily.

The exception is that any trending Friday will need to begin by gapping away from Wednesday and Thursday’s range. A gap up maintained above 899’00 would be likely to trend higher intraday, and a gap down under 888’50 would likely extend down. Special emphasis on that “maintaining” part, because either level is resistance or support until exceeded through the opening sequence.

Was the recent drop was just the rally’s latest self-preservation tactic – discounting price so expiration influences can lift price back up? Typically, Friday’s open would hit the ground running, meaning that Thursday afternoon should have already been in motion. But Thursday’s motion was essentially sideways. Unless the open gaps up above Thursday’s highs, any later gains will likely be retraced. And meanwhile the session would more likely trade flat to lower – sharply lower, if at all.

Indicators and Internals.
RSIs and MACDs became overbought into session highs Thursday afternoon, but without making higher highs along with price, so there is no unfinished business above the market.

Friday’s opportunities.
The opportunity to gap open either way will also have a catalyst. Plenty of econ reports are hitting the market before Friday’s open, and after. It starts with CPI pre-open at 8:30, and ends with Consumer Sentiment 25 minutes into the cash session. If the open chooses not to gap, the session probably won’t want to trend. This being a Friday, the morning’s bias signal will likely persist well past the noon hour.[/pay]

[pay]Pattern notes.
If sellers were retaking control from this stage of the rally, they needed to do so as powerfully as possible. Wednesday’s gap down under Tuesday afternoon’s low reflected quite a bit of selling pressure. Maintaining the gap triggered a session-long decline setup. And the session did decline 27 points into the afternoon.

A last-hour new low and/or trending down into the close are traditional outcomes to the session-long decline setup. Another characteristic is not bouncing into the close in place of the first two criteria. The the last hour didn’t produce a new low, but it didn’t bounce either. This doesn’t negate the objective to reach new lows. And it should provide compensation for the delay, exacerbating the eventual drop.

The decline could be derailed, and two scenarios are described below. They are at the moment hypothetical. The facts we do know are that a session-long decline was signaled, and essentially fulfilled but for a technicality that is yet to be resolved. The drop emerged from a 1-1/2 week topping pattern, that still hasn’t let buyers gain traction while breaking relevant support. Perhaps Friday’s expiration can save the day by rejecting Wednesday’s drop. But the trend has otherwise reversed down.

Indicators and Internals.
Wednesday’s last 2-1/2 hours of ranging sideways was preceded by a decline. The decline ended with two lower lows at 881’00 and then 880’00. RSIs made higher lows but were still oversold, undermining their bounces. Sellers never extended themselves again, and there was no opportunity for a positive divergence.

Thursday’s opportunities.
The PPI and Jobless Claims each are high-profile, and both are released at 8:30. Two scenarios might interrupt lower lows, or detour them. First, although not required, an interim bounce to 892’50 or 898’00 is possible overnight, while still allowing a gap down Thursday. Second, the drop could be invalidated by gapping up above either bounce limit. But gapping down under under 880’00-881’00 should resume the decline with a vengeance, or else be vulnerable to buyers gaining traction for more than a corrective bounce. [/pay]

[pay]Pattern notes.
Sellers couldn’t just make a splash Tuesday if they were regaining control. They needed to produce a tidal wave. The open’s gap up wasn’t exactly in that spirit. The opening strength’s rejection, and extending it down into last Monday’s range, that was the spirit. But it was still just a splash – a big splash, but only a splash.

Sellers weren’t making their move, but the market’s new sponsorship isn’t buyers. Sellers still accomplished almost three things. The most obvious is the chipping away at support. There really aren’t any “lower prior highs” yet to be tested as support, which could otherwise mean the difference between buy and sell. Tuesday’s bounce began upon touching last Tuesday’s prior low, obligatory support at best.

So the sellers’ second accomplishment was to neutralize another support level from stopping a later sell-off. None of which matters without that later sell-off, which was nearly their third accomplishment: triggering a sell-off. Nearly.

A close beyond the 906’00-908’00 range would have left Monday’s equilibrium behind. Despite surging to 912’25, the last half-hour fell back down to 903’75. A last-minute bounce recovered 906’00 to avoid triggering a sell signal, and held 908’00 as resistance. Buyers didn’t gain anything other than living to fight another day.

Indicators and Internals.
The technical non-confirmations at the afternoon’s peak were essentially fulfilled by the 8-point drop that followed. RSIs never got oversold at the last-minute drop’s low, so there was no positive divergence when futures blipped down momentarily.

Wednesday’s opportunities.
Of several econ reports due in the morning, none is very high-profile. Intel (INTC) made some favorable news before Tuesday night’s Globex open. This might have been bullish if the futures post-close price action had developed before the cash session close. Its optimism could still influence near-term price action, if only by off-setting selling pressure. Meanwhile there remains potential for attacking Friday’s highs. Sellers shouldn’t yet pose any significant threat without clearly breaking under 898’00. [/pay]

[pay]Pattern notes.
Monday’s gap down extended lower into the cash session open, and then a little lower from there. Selling didn’t resume until the last hour’s drop back to the morning’s low, whose technicals factors had already required its retest. So this magnetic attraction to lower prices has been neutralized.

This objective was neutralized, but another remained outstanding: the gap back to Wednesday’s 903’50 cash session close. Not that all gaps must be filled, but Wednesday’s futures gap was filled during Monday’s open, and the other normally follows soon after. It’s not a particularly strong magnetic attractions, and the only other one isn’t either. Monday’s close under Friday’s low wasn’t very bearish because Friday’s session was an otherwise irrelevant inside day.

Monday’s session was not an inside day. It was the second consecutive day to trade within Thursday’s range, but that is not directionally relevant. However, it does underscore the lack of improvement in three consecutive days. Financial media is turning bearish – seemingly everyplace from weekend articles in FT.com and WSJ.com, and CNBC’s theme the day – and that’s often reason enough to turn bullish. Let’s just say it’s enough reason to expect an attack on Friday’s high before sellers gain traction.

Neutralizing the retest of Monday’s opening low came within minutes of the close. New sponsorship had no time to gain traction, whether for a reversal or for extending the drop at an accelerated pace. This is a state of equilibrium whose first trending attempt tends to be false, fully retraced, and reversed more substantially in the opposite direction. Unless Tuesday’s open gaps down under Thursday’s 899’00 prior low, I’m expecting the session to range back up to Friday’s prior high.

Indicators and Internals.
RSIs at Monday morning’s low were simultaneously oversold. This situation doesn’t tend to attract durable buyers, making the low’s retest likely. Technicals were relatively improved on the low’s eventual retest, leaving no unfinished business.

Tuesday’s opportunities.
The econ calendar isn’t particularly high-profile. Any trending maintained beyond either end of the recent range would be that much more meaningful. Meanwhile, attempts to trend beyond the range are likely to fail, like a test of the gap back to Thursday’s 903’50 close. Almost any slightly weak open is likely to recover.[/pay]