Market Wrap

[pay]Pattern notes.
The open’s retest of prior highs and their early afternoon probe all reflected optimism. The morning’s reaction to the open’s surge, and the afternoon’s retracement back under prior highs all qualified the optimism as being ineffectual. The last hour’s recovery was optimistic for controlling the 3:20-3:30 window, and ineffectual for not exploiting it with follow-through until another 10 minutes later. The delay limited the follow-through initially to probing new highs by only 2 ticks up to 829’50.

Thursday close was above prior sessions’ highs, but not above the sesion’s prior intraday highs despite their extensive probing. Thursday close is officially a breakout above the recent range, but of a very dubious nature. Thursday’s breakout gets a benefit of the doubt for extending higher, and for putting 844’00 into play. But it should be reminded that breakouts are most vulnerable when they are at their youngest.

Meanwhile, the session left outstanding three pieces of unfinished business at lower levels. The bias-up signal still wants to test the morning’s 804’00 bias-down signal. The bias-up signal’s conversion into being a sell signal wants to test the morning’s 796’75 bias-down target. And the session’s equilibrium wants to  reverse the morning and afternoon’s rally’s by an equal or greater measureiment to the downside.

Indicators and Internals.
RSI didn’t diverge negatively into Thursday’s last-minutenew session highs. But only because technicals weren’t overbought on the first probe. RSIs did underperform, but they simply didn’t diverge negatively.

Friday’s opportunities.
The pattern doesn’t require any pullback before extending higher, but higher highs aren’t required. This being a Friday, any initial trending is likely to persist well past the noon hour. Gapping down just a little in this environment wouldn’t necessarily be bearish, but under 821’75 and 818’00 would be likely to make up for Thursday’s lost time. Two relatively high-profile news items are due, one pre-open and the other 25 minutes after the cash session open.[/pay]

[pay]Pattern notes.
Tuesday’s last-minute dive was rejected by the open’s gap up to 809’50 that eventually extended higher. The recovery was productive by probing new highs above 821’00. The plunge to 787’00 could have sealed a top had the session closed there, but it did not. Buyers would have gained traction by recovering 809’50, but it held as resistance. So did they accomplish anything other than dealing away the oversold situation?

Sellers played it smarter. Rather than expend energy to force a close under 787’00, they let a rally end the day. And rather than fight back at 804’00, they let the bounce extend. Finally the last hour’s recovery took on short-squeeze characteristics. The aggressive surge expended buyers’ energy, and neutralized any magnetic attraction back to 809’50.

The wide intraday range’s close back at the session’s open suggests the market is at equlibrium. The first trending attempt is likely to fail – not required to fail, but likely. The pattern is neither bullish nor bearish. Except that it is bearish for not being bullish on a day that probed new highs and recovered a steep afternoon slide.

Indicators and Internals.
RSI journeying from extreme to extreme showed little hesitation by buyers, and then by sellers, to express their opinion through order flow. The session’s wide fluctuation was not noise. Divergences were reacted to, and extreme readings were already retested, leaving no unfinished business either above or below.

Thursday’s opportunities.
An immediate recovery above 814’50 would signal that buyers were trying to retake the control, doing what they opted not to do one day earlier, and at a cheaper price. In other words, this will be difficult, and vulnerable to peaking under 818’00. Otherwise, An immediate break under 804’00 would signal that patient sellers were being rewarded for letting Wednesday’s last-hour rally retrace so much.[/pay]

[pay]Pattern notes.
Tuesday’s session gapped down to put 804’00 in jeopardy. The morning-long range never touched 804’00. Selling pressure was never very meaningful, and neither were the buyers that absorbed it. An afternoon bounce was quickly stopped upon testing targets up to 820’00, which pushed price back down into the range. A very late break finally probed 804’00 by nearly 3 points.

Although price had been under pressure for more than two hours prior from 820’00, the sudden last-minute 7-point plunge under 808’50 was not part of the same effort. Its break under 804’00 would have been overtly bearish if begun just 20 minutes earlier, which was trading at the same price level as 20 minutes later. This weekend’s Trading Plan notes that a breakout yet to happen should constantly be asked why it hasn’t. Monday’s last-minute break should be asked why it waited so long.

One reason may be that the timing undermined its credibility. A gap under 796’25 Wednesday is needed to confirm Tuesday’s last-minute selling was valid. The alternative likely open is a quick recovery above 809’50 that puts into play a retest of Monday’s 821’00 high, presumably including a test of 825’00.

Just gapping above 812’25 would signal a session-long rally. I suspect this won’t happen, or that a gap up will fail its challenge of a higher resistance. Failing to even attempt eitther would make a gap under 896’25 likely, which would almost single-handedly mean the bear market rally’s end.

Indicators and Internals.
RSIs were both oversold at Tuesday’s last-minute low. The simultanous reading increases the vulnerabilty to a bounce, just as Monday’s last-minute overbought sparked the overnight slide. The 3-minute RSI was at its most oversold at the price low, making it likely to be retested. Its highest overbought accompanied the cash sesion’s 820’00 high. Its retest would likely be met on the way to 825’00.

Wednesday’s opportunities.
Reaction to the primetime presidential address will be known overnight. I’ll make comments assessing the playing field then. Either Tuesday’s last-minute dive is a knee-jerk discount in case of bad news, or it knows something. News at 11.[/pay]

[pay]Pattern notes.
Monday’s open gapped up above Friday afternoon’s last relative high. It’s the basis for a “session-long rally” setup, but this instance ran into more resistance than the setup normally tolerates. Buyers overcame the callenge, recovering back up to last week’s highs around 800’00. Buyers overcame a challenge here, as well, when its retest was rejected back under prior lows. Normally this setup would erase the entire session’s gain, but this instance recovered above 800’00 as the afternoon’s bias signal lapsed.

The afternoon’s last long-entry was literally dictated – taken grudgingly – and the rally never looked back before touching the 821’00-825’00 target’s lower-end. Slopes like Monday afternoon don’t produce a trend extreme. A pullback is likely, especially since the target area was met and held at session highs. Holding 809’50 would remain likely to recover for a higher high Tuesday. Under 804’00 would start to suggest a bigger pause underway.

Regardless, the market’s behavior remains in-line with a bear market rally. Record-setting gains notwithstanding, they are more normal in the context of a bounce’s end. This speaks to timing but not at any specific time, and Monday’s rally did give buyers traction that won’t be easily retaken. Tuesday’s session may yet prove worthy of playing from the short side, but Monday’s high should be retested at some point.

Indicators and Internals.
3-minute RSI was essentially overbought for the last 17 points of Monday’s rally, and Monday’s rally was strong through the cash session close. Both 1-minute and 3-minute RSIs were overbought at the ultimate high, increasing the vulnerability to a pullback, but also marking a level likely to be retested.

Tuesday’s opportunities.
An prime-time presidential address may inhibit trending, which would be bullish for also inhibiting a pullback from extending down. Upon retesting Monday’s high, the same influence may become bearish for inhibiting higher highs. The groundword for Monday’s rally was laid in the uncertainty fostered by last week’s FOMC surprise, and the week-ending two-day decline. PPIP’s details provided certainty. The only uknonwn details now are the various programs’ cumulative effect(s), and the main event is Tuesday night’s address.[/pay]

[pay]Pattern notes.
Wednesday’s open had gapped down ahead of FOMC, and FOMC’s surprise triggered a surge to new highs. The new highs held a test of the 800’00 target, which held a retest when Thursday’s open gapped up. The market slid from there into Friday afternoon, whose close barely avoided ending under 762’50.

Closing under 762’50 would have taken the buying from Wednesday’s intraday recovery through Thursday’s opening gap up, tied it up with a neat bow, and dropped all of its weight onto Monday’s open. Sellers could have done this, but did not, despite coming as close as possible. Once a pattern is identified, it must constantly be asked why it hasn’t yet triggered. Often it is just a matter of time, and sometimes just timing. The first test of 762’50 was only a couple of hours old (time) and the close was fast-approaching (timing).

Sellers won’t have those excuses Monday. But now the bar is being raised (or lowered, as it were) to 758’00, whose break would target 750’00. If held as support, a retest of last week’s high would start becoming more likely next than declining back to the lows. There is room to probe several under 750’00 before confirming the decline back to the lows was already underway.

The chart above shows various resistance encountered at last week’s high. The area coincided with normal retracement measurements of the last three downlegs. Their simultaneous satisfaction doesn’t prevent their retest, nor does it mean buyers would gain traction on their retest – more important would be how technicals compared at the time. More important first, though, is that last week’s high doesn’t require a retest before falling back to the lows. Lows that require a retest, but aren’t required to hold.

Indicators and Internals.
MACD & RSI diverged positively Friday afternoon when 762’50 was first retested by a 1-point margin. That produced a 10-point bounce. Technicals improved further on the last-minute retest, but it was too late to prevent extending down Sunday night. In the absence of gapping down Sunday night, Friday’s last-minute technical improvement would give credibility to a retest of Friday morning’s ~776’50 lows as resistance.

Monday’s opportunities.
Careful what you ask for, you just might get it. The administration’s son-of-TARP will be formally unveiled Monday. The Federal Reserve threw a curveball last week, in that some of its more aggressive components had been dismissed previously. The playing field’s new “fluidity” may have renewed uncertainty over this week’s announcement, and accounted for Thursday and Friday’s decline.Initial feedback to details released this weekend say the plan contains no surprises.

A knee-jerk relief rally would be vulnerable to failure, trapping more buyers to fuel the two-week old rally’s retracement. A poor initial reaction that recovers would trap shorts, giving the rally a better chance at resuming. Regardless, a poor initial reaction cannot be relied upon to recover. Existing Home Sales is due at 10:00, and the econ calendar only gets busier through the week.[/pay]