Market Wrap

[pay]Pattern notes.
Pullbacks can resolve the same as when pushing a balloon under the water’s surface: it pops up dramatically upon letting it go. That explains Wednesday night’s 20-point pre-open gain after S&Ps had been pushed down under 819’00-822’00 for three consecutive sessions. Intraday attacks on last Sunday night’s 848’00 highs also kept S&Ps from floating any higher, until Thursday’s last 90 minutes rallied to 854’50.

Analytical note: Fridays are vulnerable to trending up or down sometime during their last 90 minutes if the open’s trending doesn’t extend through the noon hour. This also applies to the last session of the week in case of a three-day weekend. Had Thursday’s opening surge extended through the noon hour, then the last hour would likely have ranged sideways.

Pop-ups last only so long unless the balloon is filled with helium or it catches an updraft. So, was this balloon filled with helium? Did it catch an updraft during Thursday’s last 90 minutes, and will it catch another on Monday? Probably, but only briefly if there’s no delay. But not at all if Monday’s open gaps down under Friday afternoon’s 843’00 low to invalidate the later rally. So, recovering from modest weakness is the best chance for trending up considerably.

What of the topping process that had been developing around the 844’00 prior highs? If the month-old bear market rally is ending, then Thursday’s higher high must prove to have been a test and not a breakout. This is possible, so far, since the prior highs were the midpoint to Thursday’s range. That is, until the late rally, but the rally’s 854’50 peak tested the noise range’s upper-end around (a 10-11 point dip down instead was just as possible).

Most breakouts can be dismissed as a retest of prior extremes, or noise around the retest. This is why a valid breakout requires the confirmation of a second consecutive close in the breakout’s direction. Confirming Thursday’s breakout would all but ensure the bear market rally persist well into summer – not necessarily much high, just much longer. If the bear market rally is topping and Thursday’s late rally was only noise around the retest of prior highs, the evidence would be a near-immediate reversal down.

Indicators and Internals.
Thursday’s last-minute high was probed by 1 tick right after the cash session close. Both 1-minute and 3-minute RSI diverged negatively. The interim low was shallow enough for its minimum pullback target to be met easily, and not leave unfinished business below, so the burden of proof is still on sellers.

Monday’s opportunities.
A pullback has several points of room down to 849’00-850’00 before retracing more of Thursday’s late gain. Any lower would threaten Thursday’s noon hour lows down to 842’25, whose break would put into play 827’25. All of which is just a detailed way of saying, the top would be in. Confirming Thursday’s breakout would be less restrictive to the upside, and its next target would be a function of Monday’s opening range. The econ calendar is empty, so earnings news could be critical.[/pay]

[pay]Pattern notes.
Dogs like to chase moving cars, but what happens if they catch one? Not much. The market is in a similar situation.

Friday and Monday’s lows each dipped under last Thursday’s 823’25 prior low, and each dip recovered. Sellers finally got what they wanted Tuesday by gapping down to new relative lows. So, how’s that working out? The session never recovered, and Wednesday’s session essentially ranged sideways, only to close 1 tick under last Thursday’s low.

Actually, labeling Thursday’s price action as a sideways range doesn’t recognize the overnight drop to sharply lower lows. So, does this make the break a success? In a way, for leaving unfinished business below (new Globex trend extreme at 802’25, oversold low at 803’25) that require a retest. These will inhibit a rally, but not necessarily prevent one.

Three consecutive sessions have now dipped successively lower under 819’00-822’00 without extending down. Tuesday’s low held a retest of its morning’s low, and Wednesday’s last-minute rally saved the day. The finicky selling can be easily exploited by the impending three-day holiday weekend which tends to add a bullish bias.

While awaiting retests of Wednesday’s pre-open lows, there might first be a visit to last week’s highs around 842’00, perhaps also probing Sunday night’s 848’00 highs. Opening above 828’00 Thursday would facilitate the move. To avoid this, or to avoid simply ranging sideways into the weekend, Thursday’s open must essentially gap under 819’00, and preferably under the cash session’s 811’00 low.

Indicators and Internals.
Late-afternoon negative divergence in the 1-minute RSI was accompanied only by weaker MACD. The 3-minute indicators never extended selling pressure on that particular move. An immediate drop would leave no unfinished business above, but there is no indication of a pullback at all.

Thursday’s opportunities.
The econ calendar is busier than normal with no news coming Friday. The highlight is Jobless Claims. Reactions were muted to Thursday’s expected announcements, and earnings could continue having more impact on price action. Failing an early rally effort wouldn’t necessarily launch into a sustained drop. But recovering from an early dip could still be vulnerable to reversing reversing up sustainably into the afternoon. Similar to a Friday, any initial trending is likely to persist through the noon hour.[/pay]

[pay]Pattern notes.
Tuesday’s open gapped down under yesterday’s lows to signal a session-long decline. The setup was continuously confirmed throughout the day, as every checkpoint’s timing window pushed lower through a relevant price. But since the interim price action kept bouncing optimistically, the relevant prices were in some cases higher than the preceding checkpoint. Even the last checkpoint at 3:20-3:30 – appropriately spent trending down under 815’50 – did not prevent a bounce up to 819’50 before sliding back to 811’25 into the cash session close.

So, the session-long decline was productive in keeping price negative throughout the day. But it wasn’t much more productive than the 813’50 pre-open low. It’s almost, but not quite, “ineffectual pessimism” that would suggest the market was trying to trap shorts. That won’t matter without an attraction to higher prices that might squeeze those trapped shorts.

NOTE: Don’t forget to add your stock request to the blog’s
comments section of my earlier post on this matter.

Indicators and Internals.
Tuesday morning’s 822’25 high was accompanied by the highest overbought 3-minute RSI, which tends to require a retest. This is because the overbought reading reflected substantial buying pressure. One exception is when subsequent price action absorbs the residual buying pressure. Tuesday’s did, by ranging sideways for an hour. A retest of 822’25 would be more likely to extend higher.

Wednesday’s opportunities.
A bounce back to 822’25 will be assessed for whether it is neutralizing Tuesday’s “ineffectual pessimism” so the decline can resume. Extending the bounce back above 823’25 would be more bullish – not necessarily to retest Sunday night’s highs, but potentially. An immediate break under 804’00-806’50 would simply point down, and probably sharply.

The SEC has long-planned an April 8 meeting to revise and reinstate the so-called “uptick rule,” which might have a bullish influence if anything is simply agreed to. Normally I would look for thinner afternoon trading ahead of the evening’s Passover holiday, which also tends to be bullish. But the 2:00 FOMC Minutes might delay some participants’ departure plans. And the FOMC news is likely to be influential anyway. As for the night’s full moon… [/pay]

[pay]Pattern notes.
Monday’s gap down extended down through the morning as sellers chopped away at support. The afternoon chopped away at resistance into the close. Not chipping away, but chopping. Channeling, not accumulating. Two probes under the morning’s 821’50 bias-down target were each recovered going into and coming out of the noon hour, when the afternoon’s 818’75 bias-down signal was touched as support.

Sellers never renewed their traction, so price simply retraced back into the range instead of trending away from it. The peak was a 61.8% retracement back to Friday’s prior high, and a 50% retracement of the drop from Sunday night’s highs. Either one qualifies as natural resistance for a correction. There is no requirement to fill the gap back to Friday’s close, or to retest Sunday night’s highs. Modest strength overnight or at Tuesday’s open would be vulnerable to reversing back down.

If Monday’s drop cleared the way for resuming the rally, then the rally’s resumption should be very obvious, gapping up above 836’75 and extending higher. Not resuming Monday’s drop shortly after Tuesday’s open would help Sunday night’s highs to attract a retest. The clearest setup for resuming the drop without bouncing first is to slide immediately through most of Monday afternoon’s range.

Indicators and Internals.
Technical action at the noon hour’s low correctly predicted a bounce. So it is interesting how unremarkable technical action was during the afternoon’s price rise. 3-minute RSI refused to become overbought throughout the entire afternoon. This hardly suggests that buyers were sponsoring the move, instead of price simply reacting to the noon hour’s positive divergence at support.

Tuesday’s opportunities.
After three days of ranging sideways at new highs, any attempt to resume the rally would be suspicious, and likely to fail. For similar reasons, sellers won’t have much credibility if a probe of Monday’s lows doesn’t develop quickly into a noticeable downleg. A fourth consecutive ranging session is possible, just not likely with only three days remaining before a three-day holiday weekend – and quarterly earnings reports on their way.[/pay]

[pay]Pattern notes.
Friday’s session left outstanding a  new lower price that requires a retest, the afternoon’s 824’50 bias-down signal. Its retest was put into play when the 833’25 bias-up signal held its noon hour test as resistance. The no-bias environment didn’t even try to test the target, and instead rallied up to 838’00. It was a no-bias rally, so it was doomed to failure, and it did fail completely. But its 9-point retracement stopped 5 points short of meeting the target.

The last 5 points might as well have been 50, since they required breaking key support after 3:35. That’s too late to try. Sellers did try, and as often happens to selling that starts after 3:35, the “weak hands” were trapped. The close 20 minutes later had recovered back to 838’00. Several minutes later S&Ps were 4-1/2 points higher. The trapped last-minute sellers aren’t accountable for that much gain. Recovering just back to 838’00 was already getting excessive. The new session highs were suspicious.

Nevertheless, Friday’s cash session was essentially an inside day, trading exclusively within Thursday’s range. (The pre-open surge up to 844’50 was only a retest of Thursday’s high, and only pre-open.) An earlier recovery back to Thursday’s highs probably would have extended much higher. But the market didn’t allot itself enough time, because it didn’t intend to use it.

Holding Thursday’s lows can be explained easily by their retest happening on a Friday when participants leave early. The aggressive late buying might have been exacerbated by their absence. There was also the memory of recent weekends that contained surprising favorable news. There had better be. Otherwise, Friday’s buying expended too much buying pressure to launch a breakout without outside influence.

Indicators and Internals.
3-minute RSI was overbought at the late rally’s high. The late rally’s high printed after the cash session close, so it does not require a retest.The 1-minute RSI also peaked then, so its retest is more likely, but still not required, and could be neutralized overnight.

Monday’s opportunities.
If Friday’s last half-hour rally deserved suspicions, then Monday’s open should gap down to retrace substantially all of its gain from the 830’00 area. The afternoon’s prior relative low is 828’50, and gapping under it would signal a session-long decline. Anything less could trade out the day ranging at recent highs. Initial strength beyond 845’50-846’50 might be breaking out, after all – and I look forward to hearing the news that justifies it. [/pay]