Market Wrap

[pay]Pattern notes.
Thursday’s pre-open buying pressure was a head-fake. Mainstream expectations were for the rally to resume, perhaps with the same force as Wednesday’s FOMC reaction. Much of the FOMC reaction had been retraced during Wednesday’s last hour, which the overnight recovery seemed poised to reject. Not so fast, there.

The overnight rejection was itself rejected. Wednesday’s last-hour low at 780’25 required a retest, and it was retested, just before noon. When that bounce began, its optimistic characteristics were identified, and its retest was expected to extend lower. It did, down to 778’00. The market bounced 11 points into mid-afternoon. Had the bounce extended higher into late-afternoon, it would have retested the 800’00 area and perhaps extended up to 821’00-825’00.

Instead the bounce was retraced entirely. Actually, not entirely. Last-hour attacks on the morning’s low stopped 2 ticks short of touching it. The optimism prevented any bounce from gaining traction. Then a last-minute dip probed the morning’s low by 3 whole ticks down to 777’25. But only momentarily, as S&Ps immediately bounced 4 points through the close.

The pattern should have resolved down sharply if it wasn’t going to rally. And it didn’t rally. So, does trading out the day at session lows qualify as resolving down? No, so now the pattern requires Friday’s open to gap down to and through 774’00-777’00 to serve by proxy as if Thursday’s close was under 778’00. Back above 787’00 would be bullish for retest of the highs instead.

Indicators and Internals.
Thursday’s 3-minute technicals were very complacent while 1-minute MACD & RSI fluctuated widely. Option expiration influences can be responsible for this split personality. But expiration’s influence doesn’t shield price action from resolving the split personality in a violent manner. The readings are less likely to repeat Friday.

Friday’s opportunities.
Expiration session characteristics tend to be duplicated the following Monday. If Friday’s openj does gap down and slide sharply then Monday would also be likely to extend down. By the same token, maintaining early strength would set-up a bigger recovery into the week. One thing not expected is a flat narrow range.[/pay]

[pay]Pattern notes.
Has the market’s rise been a corrective bounce, or a bear market rally? Was there a single upleg having potential to 774’00 that would reverse back down to the lows (i.e. bounce)? Or was a multi-session, multi-leg advance underway targeting 800’00 or 821’00-825’00, and then back to the lows (i.e. rally)? Retracing a corrective bounce would have potential to hold a test of the lows. Reversing a bear market rally would target a move to new lows.

We still don’t know, but the two are starting to look very similar. The bear market rally’s minimum target has been achived in a single upleg from March 6’s low. The bear market rally would have to be substantial if this has been only its first leg.

Wednesday’s FOMC reaction spiked up from 774’00 and continued surging until testing 800’00 by 2 ticks. A close under 774’00 would have been self-evident as having sealed a top and already reversed momentum down. A gap open Thursday under 773’00 would serve by proxy, but Wednesday’s close above 791’00 makes that difficult.

Meanwhile, the last hour’s bounce from 780’50 is still likely to be retraced. Its origin was simply an obligatory bounce (780’50 had been a prior reaction’s low), and the bounce began from just above prior highs instead of first testing them. If the bounce’s 780’50 holds its test, then the rally could resume – if only to retest Wednesday’s 800’00 high. But I would give sellers a benefit of the doubt until proved otherwise.

Similarly, a close above 793’00-794’00 would have helped to absorb any initial selling. The alternative – a proxy – would be to gap open above 796’50 and reinstate the momentum of Wednesday’s rally, and possibly put into play 821’00-825’00.

Indicators and Internals.
Sellers did not do enough Wednesday afternoon to influence technicals. There was no unfinished business above, but sellers don’t appear to have opposed buyers. It’s not a sell signal, but the market’s reaction will be interesting when selling pressure actually appears.

Thursday’s opportunities.
Jobless Claims before the open are just the beginning of a moderately heavy calendar. LEI and the Philly Fed Survey come 30 minutes after the open, timing that tends to accelerate or to reverse any initial trending. A pullback Thursday need not end the corrective bounce or resolve back up into a bear market rally. But unless Thursday’s open is firming, a pullback is likely regardless. Gapping up would initially target 809’50. [/pay]

[pay]Pattern notes.
Monday’s rally had potential to 774’00 before being cut down by the afternoon’s drop. Tuesday’s rally finished the cash session at 774’00. Despite extending to 777’00 after the close, a dip fell to 771’25. But essentially the overnight price action has ranged around 774’00.

This is equilibrium – meeting a target as a timing window closes. The trending didn’t stop short and leave something on the table to resume the trending. The trending didn’t extend in time to put into play further targets. And the trending wasn’t retraced in time to reverse direction. Typically, the first trending attempted from equilibrium is false, similar to trending from a triangle or from an extended range.

The pattern has yet to establish whether it is beginning a multi-week bear market rally, or ending a corrective bounce off the lows. But the 774’00 area was the latter’s upper-limit, and it has been met. Maintaining higher highs would suggest a bigger rally underway, targeting 800’00 and potentially 821’00-825’00. Not extending higher Wednesday wouldn’t signal momentum reversing down, but it might as well, if Tuesday’s rally out of Friday and Monday’s ranging can’t attract more buying.

Indicators and Internals.
A positive divergence at the 771’25 overnight pullback low quickly bounced 3-1/2 points but hasn’t extended higher while technicals have deteriorated. There is no unfinished business either way.

Wednesday’s opportunities.
The afternoon’s FOMC announcement might inhibit trending attempts by late-morning. CPI could help to get things going for awhile. So long as the bias-down isn’t signaled, a retest is likely of Tuesday’s 777’00 post-close high… Be sure to add your stock request on the blog for today’s review. [/pay]

[pay]Pattern notes.
The week-long rally has been either a corrective bounce preceding a retest of the lows, or else the beginning of an extended bear market rally. A weak morning Monday would have helped the latter scenario, refueling buyers for a longer journey. Instead the session rallied first, and then cratered. Regardless of the order, the session ended essentially flat from Friday’s close, so neither scenario has yet been determined. And momentum hasn’t necessarily reversed down.

Monday afternoon’s low reached its objective at 750’00, natural support where the overnight surge had lifted off. A bounce would likely attack 759’00 or 763’50. Any higher would no longer be a bounce, and would more likely retest Monday’s 771’50 high by several points. The minimum bounce target is being tested overnight, and back under 755’50 would signal it had probably ended.

Indicators and Internals.
MACD & RSI diverged positively as Monday afternoon’s low was fulfilling its objective. The setup is fulfilling its 759’00 likely bounce target, and both 1-minute and 3-minute indicators are diverging negatively. A higher high would be difficult to maintain without first pulling back. And a deep enough pullback would be more vulnerable to sellers gaining traction for resuming Monday afternoon’s decline.

Tuesday’s opportunities.
The econ calendar is active. The big test won’t be how the market stands up (or down) to the news, but how it reacts to Monday afternoon’s retracement. The morning’s rally is similar to the bounce underway overnight – both allow room for selling to drive price down without breaking under prior lows. Early weakness Tuesday will need to be profound weakness if sellers are going to gain any traction from it. A gap up would be more difficult to maintain, let alone extend, but still possible until sellers have retaken control.[/pay]

[pay]Pattern notes.
Last week’s rally retraced all of the prior week’s loss. The score seems tied to those with selective or short memories. Actually, the prior week’s loss began when Feb 17’s open broke under multi-month lows. Lows that held through multiple months – seems like important support. And their ultimate break fell under all prior lows – seems like an important break. One up-week pales in comparison.

Thursday’s close deposited the market back above prior relative lows, within sight of prior relative highs. But the open’s optimism was utlized by absorbing sellers throughout the day. Had Friday’s close not recovered back into positive territory, the optimism could have been preserved for this week’s buyers. Optimism isn’t dead, yet, but could soon be missed sorely.

A two or three-week old break eventually produced the long-awaited retest of last year’s low. The bounce from that test’s low is now challenging last year’s low as resistance. Thursday’s close recovered it and Friday’s session held there. The recovery began after fulfilling important targets at the low, but that doesn’t mean a bull market is free to begin. Even a bear market rally is due its own corrections.

Indicators and Internals.
Technicals were already deteriorating or diverging negatively into Friday morning’s highs. The intrday dive fulfilled these readings and their selling pressure. Friday’s close completely retraced the intraday drop, so almost any hesitation at extending higher Monday would likely repeat the intraday dip.

Monday’s opportunities.
Last week’s bounce has more ground it can cover up to 763’00-764’00 or 774’00, another 8 or 16 points above Friday’s 755’00 close. Monday’s buyers could be helped by the magnetic attraction back to Friday’s 758’25 pre-open high. Immediately exploiting last week’s success is the quickest way to kill it, and an 8 or 16-point gain would likely squeeze out the last bit of optimism.

Back under 748’50 would target 744’00, and under 741’25 would target 737’00. Resuming last week’s bounce from there would still target only 763’00-764’00 or 774’00. Under 737’00 would target 723’00, and potentially refuel the bear market rally to or through 800’00. Under 723’00 would target a retest of the lows, an eventual requirement, but not currently required.[/pay]