Market Wrap

[pay]Pattern notes.
The last time I specifically addressed the bigger picture was April 20, six weeks off of March 6’s low. That Friday had finished at a new recovery high. My analysis spooked S&Ps into a 38-point drop the following day (highlighted orange). The following morning fell briefly another 6 points, then recovered intraday to avoid confirming the prior day’s break.

In the three weeks since, sellers have been afraid of their own shadows. Until Thursday.

Not that buyers were any more aggressive. The high coming into April 20 wasn’t probed intraday until nearly two weeks later (highlighted yellow). The rally had not peaked, but that leg had. The next breakout finally came last Monday, in the form of a 30-point surge. Buying was aggressive, but it wasn’t accumulative, which would have been confirmed by closing higher the following day.

Wednesday’s attempt to renew Monday’s breakout was as good as it gets, awaiting only the confirmation of a higher close Thursday. This proved to be elusive again – more so, since the pre-open surge was reversed well into negative territory. In fact, the cash session ended back under Monday’s alleged breakout high (futures firmed after the close).

The two general perceptions are that Friday’s recovery wiped away the damage done Thursday, or that Thursday didn’t do that much damage. Actually, Thursday didn’t do enough damage, which means Friday’s recovery didn’t recover.

Tactics during the two-week range before last week clearly identified sponsorship as being weak buyers. The character of last week’s rally attempt was different, and the biggest difference was how quickly dips were recovered. Dips had previously remained depressed long enough to trap shorts while attracting new buyers to cheaper prices. Last week’s buyers gapped up four times, but gained no traction beyond Monday’s close. Friday’s gap up trended up intraday, but remained within the prior day’s range and accomplished nothing new.

Friday’ “ineffectual optimism” is either trapping buyers, or it is hyper-optimism. If it is the latter, then it should extend higher without any delay, targeting 942’00-945’00, or even 959’00-962’00. Otherwise, the rally may as well have peaked already Friday.

Indicators and Internals.
3-minute RSI was barely overbought at Friday afternoon’s session high, hardly enough to require its retest but enough to consider it. Regardless, it was RSI’s second lower high on the session’s second higher high. The 1-minute RSI was clearly overbought, and apart from being on Friday afternoon, their combination makes some sort of retest likely.

Monday’s opportunities.
No econ reports are due – in fact, nothing very high-profile until Thursday and Friday’s PPI and CPI. The week will start with news of new taxes, modest in the scheme of things. Thursday’s loss consolidated too briefly for Friday’s immediate recovery to extend higher Monday. The combination of Thursday’s new high intraday, and Friday’s inside day that attacked Thursday’s high, would be complemented by failed probes of higher highs Monday. We’ll look for early strength to fail – regardless of whether it originates from a weaker open or stronger – but probably not extend down too far intraday. Otherwise, a higher high maintained through a relevant timing window would signal higher targets in-play. [/pay]

[pay]Pattern notes.
Has the bar tab has come due for the past week’s weak buying binge? Like a clever challenge among the bar’s patrons, buyers employed a lot of tactics to maintain the rally’s momentum, but there was really nothing there. Quick surges, shallow consolidations and brief dips – all designed to avoid interest from sellers. If we are known by our enemies, then these buyers are weak because they never attracted real opposition from sellers.

Eventually someone must pay the bill. Buyers haven’t been accumulating, only shifting money around from pocket to pocket, so the bartender will settle up himself. His method includes some heavy lifting and impolite tossing, then a not-so-gentle stretch of flying from indoors to out. Don’t ask. Along the way, 75 points worth of gains traversed in six days can be undone in six hours.

Thursday’s dramatic reversal from new recovery highs to sharply lower lows might yet prove to be only constructive pessimism ahead of Thursday evening’s stress test results and Friday morning’s Employment Situation report. I suspect not because this sell-off’s character differed from the past week’s refueling tactics, and damaged the charts. The recent optimism may have been excessive, or it may have been well-place. Either way, Friday’s price action should be entertaining, rich and informative.

Indicators and Internals.
Several consecutive positive divergences among 1-minute indicators weren’t productive, along with two 3-minute divergences. The last half-hour’s momentary probe of a new low was compared to a prior low whose indicators weren’t oversold. And despite bouncing somewhat into the close, there was no reflection of increased buying pressure.

Friday’s opportunities.
The long-awaited bank stress test results have been leaked too much for there to be a real reaction, unless the leaks prove to be wrong. The reaction to moving this news item into history will be interesting, but overnight volatility and trending might be difficult ahead of the morning’s Employment Situation report. Trending after it might be difficult to stop. Being a Friday, the morning’s bias signal is likely to influence price action through the noon hour’s exit.[/pay]

[pay]Pattern notes.
Wednesday’s last 90 minutes achieved nothing new compared to earlier price action. The afternoon’s prior high did hold a test as resistance – after the cash session close. This isn’t a new Globex trend extreme, so it won’t require retest intraday unless retested overnight. Plenty of news is due before then to drive price either sharply higher or lower before then.

While the pattern tells us how much more dramatically this will all end, it also informs our expectations for the session following a rally. The market’s pattern has been to behave optimistically, and then to be punished for its wanton excess. A gap under 3:30’s 908’00 low might be sufficient to signal a session-long decline. A gap under 904’50 would be more reliable, but less likely. Early weakness to only 911’00-912’00 would be expected to recover, if not also extend higher.

Monday’s alleged breakout wasn’t confirmed Tuesday, and now Wednesday’s breakout will be seeking confirmation Thursday. The rally can continue to employ this creeping tactic for sustaining its momentum. But it is built on weak buying, and it increases the bill that will eventually come due – typically sooner rather than later, regardless of the interim gains.

Indicators and Internals.
Both 1-minute and 3-minute MACD & RSI diverged negatively on the afternoon’s high. The drop it produced wasn’t formed on a similar technical improvement. And technicals deteriorated again through the cash session close. Perhaps it’s not quite a sell signal, but neither does it require that higher highs print.

Thursday’s opportunities.
Stress tests will become history Thursday, and a bevy of econ reports will clear the way for Friday’s Employment report. No doubt, some of Wednesday’s buying was expecting Thursday’s jobs reports to confirm ADP’s data. Even if it does, will there be enough positive surprise to justify the anticipation? Either the data will or won’t confirm, and either the reaction will or won’t show too much optimism. All of the permutations create exciting scenarios for Thursday afternoon and Friday morning. [/pay]

[pay]Pattern notes.
Monday’s alleged breakout would have been confirmed by a higher close Tuesday. Instead, the session was spent almost exclusively in negative territory, under Monday’s highs. Much if not all of the intraday loss was recovered at the close. Ineffectual pessimism that is prone to gap up, or chipping away at support to clear a path down?

Ineffectual pessimism identifies when sellers, seemingly in control, expend their energy without getting anything in return. No break under support, no trend reversal, no traction, no more energy. They do get one thing – vulnerability. It can be bullish if exploited immediately by gapping up above prior highs (905’00). The recovery isn’t necessarily durable and there is no particular ramification to holding up. But ineffectual pessimism at trend highs is much less bullish than at trend lows.

Ineffectual pessimism isn’t so ineffectual at all if followed immediately by gapping under the ineffectual pessimism session’s lows (894’00). Each of Tuesday’s lows tested one of Monday’s prior highs, some repeatedly, chipping away at its available support. Tuesday’s low also happens to be its afternoon low, and it printed before the last half-hour. Since the session’s last trending was up, gapping under 894’00 would also trigger a session-long decline.

Tuesday’s close left no unfinished business above. There was room up to 904’00, which was recovered after the cash session close. An overnight probe above Monday’s prior highs wouldn’t necessarily be a “new Globex trend extreme” requiring intraday retest, especially if retraced by the cash session open. Firming further can’t be ruled out since no sell signal has triggered, but clearly it can’t be relied upon either.

Indicators and Internals.
Tuesday afternoon’s RSIs weren’t particularly pessimistic. Selling pressure wasn’t heavy, so the last half-hour’s recovery didn’t have much opposition to overcome. RSIs did diverge negatively into the cash session’s last high.

Wednesday’s opportunities.
A couple of looks at employment are released pre-open, but there isn’t much other high-profile news scheduled. A gap up above 905’00 prior highs would get a benefit of the doubt for extending higher depending upon the overnight pattern that preceded it. Gapping down to Tuesday’s 894’00 lows would get a bigger benefit of the doubt for extending down so long as bounces held 896’00, and lower lows were maintained through the opening sequence.[/pay]

[pay]Pattern notes.
There, but for the grace of sellers, went buyers. Last week’s three consecutive session had each probed two-week old prior highs as support, undermining the breakout attempt’s credibility. It didn’t stop Monday’s opening surge, or the afternoon’s probe of higher highs. Know what else didn’t stop them? Sellers.

Last week’s last three sessions reflected weak buyers. Nothing ever triggered to signal momentum reversing down but the range could still serve as a launch pad. A weak launch pad, but a launch pad nonetheless. And any trending can’t be stronger than the pad launching it. This is one way we know Monday’s selling pressure was nominal, because the session gained.

The narrow overnight range, the open’s aggressive surge, the afternoon’s narrow channel higher, the last-minute surge… Buyers’ existence at this stage depends upon making rally legs that aren’t challenged. Short and/or shallow pullback, interspersed with quickly darting up to a higher level. Intraday gains notwithstanding, it’s still the character of weak buyers, albeit a different side than last week.

Indicators and Internals.
The 3-minute RSI became overbought at the session’s last-minute high. The very next bar touched the same high, neutralizing any pullback protection. The 1-minute RSI was simultaneously overbought at the high, which might require a recovery if the setup appeared at any other time intraday besides the last-minute action.

Tuesday’s opportunities.
Monday morning’s 15-point surge held up through the open by enough margin to expect its twin that afternoon. The afternoon’s 16-point gain from its noon-hour low satisfied this setup, peaking at its 905’00 target, and leaving no unfinished business above. The rally can extend with its weak sponsorship, next targeting 918’00-921’00, and potentially 942’00. Pullbacks have room down to 896’50 without sellers gaining traction. Back under 887’00 – on a close, or by gapping down – would start the attempt to punish the recent weak sellers. [/pay]