Market Wrap

[pay]Pattern notes.
Thursday’s open neutralized all unfinished business above – last Friday’s 821’25 highs, last Thursday’s 827’25 close and Thursday’s 830’50 high. A reversal down would have been as normal as the reversal up from Wednesday’s opening gap down. Thursday’s buyers were slowed, but otherwise undaunted. The open’s consolidation eventually broke higher to touch 842’25.

But buyers had a problem. Despite gapping up, the open had around last Thursday’s high through 10:15 and 10:30. This had essentially indicated a quasi no-bias environment, and the break higher came afterwards. The extra gain was undermined for having originated in a “no-bias” environment.

The afternoon’s retracement probed the opening range’s upper-end as support, which failed to resume the rally. The 828’75 10:15 price was finally retested as support with 10 minutes remaining in the session. The level was barely recovered from being probed by 2-1/2 points down to 826’25 – the Globex open firmed further up to 837’25.

The morning’s quasi no-bias rally is interesting, although probably not predictive. Much more relevant is how it created unfinished business and then neutralized it the same day. Its eventual resolution also fell far enough to test the opening gap. These are characteristics of equilibrium, which suggests two possible paths Friday. One path is the normal setup whose initial trend is reversed more substantially in the opposite direction. The other path would simply gap beyond either end of Thursday’s ~826’00-842’00 range and extend in that direction.

Indicators and Internals.
Technicals were predictive of topping at Thursday’s highs. There was no unfinished business at the close. The 3-minute RSI did become oversold while the last-minute dive made new afternoon lows, but the next bar printed a lower price and recovered, taking RSI along with it.

Friday’s opportunities.
Anxiousness ahead of Friday’s Employment Situation report helped to inhibit trending at all Thursday. The reaction should be volatile, but if a gap is maintained beyond either end of Thursday’s ~826’00-842’00 range, it should extend in that direction. More econ data follows at 10:00, timing that tends often either to reverse or to accelerate any initial trending. And at last word, Bernanke is scheduled to speak at noon.[/pay]

[pay]Pattern notes.
Tuesday’s opening gap up was too shallow to invalidate Monday’s decline, but it did promise to delay the decline’s resumption for 1-2 days. Tuesday’s last-hour drop hastened the decline’s resumption. A weak open Wednesday would have been able to continue sliding into oblivion (i.e. 767’00). But the open gapped down.

The open’s gap down expended a lot of selling pressure without sellers gaining traction, making the reaction up likely. The open’s gap down fulfilled the 781’00 target and quickly recovered from probing the 779’50 overnight low. And perhaps most important, the open’s gap down was retraced back above a key level that signaled the drop’s momentum was being reversed up.

The reaction up was sizable, exploiting the thin resistance above. There was no accumulation pattern, and the bounce’s first target at 795’50 was being tested before one ever began forming intraday. No pullback probed a prior low before recovering to a a new session high. And Wednesday’s last two hours only ranged around Tuesday’s 807’00 prior high – in fact, it held as resistance after a last-minute blip-up touched the afternoon’s bias-up target.

Wednesday’s last-minute high finally touched Friday morning’s “higher prior lows” as resistance. It wasn’t required, but it does neutralize a potential attraction. Having held a test of Friday’s 810’25 lower-end, buyers would gain control by gapping above Friday’s 821’25 upper-end. Otherwise, the balance of the session would likely gravitate back down, initially targeting 790’00.

Indicators and Internals.
Technicals did not confirm any of the afternoon’s higher highs. This reflects inherent weakness, but it does not signal immediate price weakness – obviously not, since no downturn materialized by the close.

Thursday’s opportunities.
No doubt Wednesday’s recovery was motivated in part by anticipation ahead of Thursday morning’s FASB mark-to-market hearing. It begins before the cash session open, and its outcome could become known soon after. Whatever the morning’s reaction to the news, the afternoon could become paralyzed by anxiousness ahead of Friday’s Employment Situation report. [/pay]

[pay]Pattern notes.
Tuesday’s sloppy open gapped up and chopped sideways until finally probing higher highs. Extending the rally through the afternoon threatened to be a session-long rally, which the open had not signaled. The lack of signal doesn’t preclude a session-long rally, it’s just odd. Anyway, the afternoon’s no-bias rally from 798’00 up to 807’00 needed to be retraced, so it was, by a 17-point drop back down to 790’00.

The close was at or under the cash session open. The “equilibrium” label doesn’t fit this instance – as it did last Wednesday – because Tuesday’s price action developed exclusively in positive territory. That’s more like  “ineffectual optimism,” also not an entirely appropriate label since the last hour’s dive penalized the optimistis. More important than a label is that the choppy open proved to be unsustainable buying that was retraced entirely. More important is that Monday’s decline wasn’t recovered or rejected. And most important is that the rally from Monday’s low could still be labeled counter-trend, as was suggested by the origin’s odd timing.

A less aggressive bounce Tuesday could have delayed the decline’s resumption through Wednesday’s open or until late Thursday. That’s still possible if Wednesday’s open bounces high enough and long enough. But almost nothing short of gapping up above Tuesday’s 807’00 high can put buyers back in control without first probing lower lows.

Indicators and Internals.
RSIs barely managed to diverge positively at Tuesday’s very last-minute lows. The differences were almost imperceptible, and hardly confirmed by MACD.  Tere was otherwise no unfinished business left outstanding at Tuesday’s highs.

Wednesday’s opportunities.
Gapping under 788’00 would be very credible for simply resuming Tuesday’s last-hour slide to lower lows. Support at 783’00-784’00 would still need special attention, but its break would essentially target 767’00 and 762’00. Closing under Tuesday’s noon hour lows might have made a corrective bounce necessary first, either at or before Wednesday’s open. Its target would be 795’00 or 798’00. Any higher could add another day before resuming the decline. Otherwise, no pattern actually predicts a bounce here, only a vunerability to it.[/pay]

[pay]Pattern notes.
Monday’s session-long decline almost lasted session-long. Then the last hour’s retest of the 776’25 target held, producing a bounce back up to the morning’s 780’25 low. The bounce became bounces, and bounces chipped away at 783’00 resistance. It was still being chipped away a the close, opening the door to an overnight bounce, instead of chipping away at 780’25 to resume the decline.

The session low picked an odd time to appear. It wasn’t an odd price or setup, just the timing. New session lows had been delayed until after the noon hour, so sellers didn’t need to be refueled. Refueling could have waited for a break under 776’25 to reach lower targets at 767’00 and 762’00. They’re still likely to be back in-play, so long as Tuesday’s open doesn’t immediately recover and/or extend through 798’00.

Just gapping above 791’00 – especially above 795’00 – would make pullbacks unlikely to turn negative, or likely to recover from negative territory. If sellers become so marginalized so early, they probably won’t be a factor through Wednesday’s open. Any less buying pressure would remain vulnerable to resuming the decline, next targeting 767’00 and 762’00.

Indicators and Internals.
1-minute RSI diverged positively into the bottom at Monday’s low. And that was pretty much it. The 3-minute RSI made a higher low, but had never become oversold. Higher lows among MACDs weren’t very impressive. There wasn’t much improvement into the last hour’s rally, making it vulnerable to a complete retracement.

Tuesday’s opportunities.
Two econ reports are due 15 minutes and 30 minutes after the cash session open, timing that tends to accelerate or to reverse any initial trending. No other shoes or auto companies are expected to drop, so attention should begin turning to Friday’s Employment Report and quarterly earnings (and mark-to-market). The market will either crouch fearfully ahead of either event, or rally in optimistic anticipation. But a retest of last week’s highs isn’t at all likely if not well underway at Tuesday’s open.[/pay]

[pay]Pattern notes.
Last week’s session opened with a record-setting surge to new recovery highs at 821’00. That was essentially Friday’s highs. It’s as if nothing happened in the interim, but of course very much did happen. Wednesday’s first attempt at extending Monday’s rally was countered by a 36-point decline to 787’00, of which the close recovered 25 points. Thursday recovered the rest, and then some, extending to new recovery highs at 830’50. Friday’s open countered by gapping down back under 821’00 to trade sideways into the close.

Except for two 90-minute periods Monday and Wednesday afternoon, last week’s price action traded exclusively above the prior week’s highs. Buyers have two accomplishments to show for their efforts at avoiding a drop: 1) A drop was avoided, and 2) A gap above was left open. The first accomplishment prevented sellers from regaining traction, similar to the prior week’s two-day decline that held above prior lows. The second accomplishment maintained an attraction to higher prices, very important now that the rally’s 821’00-825’00 target has been met and held.

Wednesday’s open and close were both tests of 809’50, creating equilibrium. This makes the first trending attempt false, and requires a reversal in the opposite direction to a greater degree. In this context, Thursday’s new high was the false break. Friday’s reversal stopped at 809’50 instead of beginning the reversal phase. The gap back to Thursday’s close might still be filled – it’s not required, since Friday’s open gapped under prior highs. But its retest is still possible nonetheless, and any higher high would only add to the eventual reversal.

Indicators and Internals.
Wednesday and Thursday’s higher highs were accompanied by lower highs among RSIs, each time producing a dip. Nothing new there. Wednesday’s oversold RSI almost immediately produced Thursday’s higher high. Also not unusual. But Thursday’s recovery was different from prior recoveries, because it was already reversed back under prior highs. By contrast, prior recoveries extended higher long enough for RSI to again become overbought, and only then was a pullback entertained. This doesn’t preclude yet another higher high Monday or Tuesday, but it would be uncomfirmed and its failure would be dramatic, since RSI hasn’t yet become oversold.

Monday’s opportunities.
The week begins with an empty econ calendar, although it gets busier as the week progresses towards Friday’s Employment Situation report. But the week also begins with macro-economic sands shifting into the G-20 meet. It seems the pace of domestic spending isn’t being embraced so warmly. The Treasury Secretary’s rounds on Sunday talk shows might get some play, as well. All of which should be apparent overnight ahead of Monday’s open.

Whether overnight or intraday, back above 823’00 would target 827’00, where any higher through any relevant timing window would target 838’00 and 844’00. Back under 813’00 and 809’50 would resume the selling from Friday’s open, further rejecting Thursday’s recovery high. There’s a treasure trove of unfinished business back to and through Wednesday’s lows – essentially 797’00, 786’00, 767’00, 762’00… with potential for eventually producing a retest of March’s low.[/pay]