Market Wrap

[pay]Pattern notes.
The drop back to yesterday’s 819’50 low had room up 822’00 for the drop’s momentum to remain intact. Its recovery all the way back to the session’s 836’00 upper-end accomplished nothing that two earlier rally efforts had not. Indeed, the buying pressure was absorbed by those rally legs and a new session high was avoided.

The entire session was a consolidation of the decline off of Monday’s high. The vast majority of the consolidation developed well above its mid-point (optimism) without breaking higher (ineffectual). Extending under 826’25 would signal the decline had resumed, next targeting 817’25 (probably down to 815’25).

The path down might be indirect, and include a momentary probe above Wednesday’s 836’00 area highs. The risk is that this indirect path might also let buyers gain traction for a bigger bounce. Regardless, despite being at the lower-end of a massive trading range, a bounce from here won’t be considered a new rally leg underway. Until proved otherwise, the decline’s resumption is still by far the pattern’s most likely resolution.

Indicators and Internals.
An overbought 3-minute RSI had accompanied the peak of Wednesday afternoon’s surge. Sellers couldn’t gain traction until the price high was retested. The timing required that retest to begin and end within a handful of minutes, while including a negative divergence. It was tight, but it was done, and it produced nearly a 10-point drop. The drop’s low at 826’00 wasn’t technically significant, so it should be retested and possibly broken.

Thursday’s opportunities.
The econ calendar has been relatively quiet. Retail Sales and Jobless Claims before the open will have a higher profile than usual considering the relative lack of recent data. They may still be overshadowed by current developments from Washington. A gap up above Wednesday’s highs would be a more compelling short than a surge to higher highs. But any short-entry would require only dropping back under a relevant price level, and not necessarily through a relevant timing window that a long-entry would require.[/pay]

[pay]Pattern notes.
A recovery above 830’00 would have confirmed a short-squeeze underway. Instead lower lows printed down to 820’75. Buyers missed another opportunity by failing to control the 3:20-3:30 window. Their opportunity for a short-squeeze wasn’t exploited. More so, it was torn to shreds, defiled in unmentionable ways, and then spoken to unkindly.

Avoiding a recovery through 3:45 meant that the decline would persist into Wednesday’s session, so the balance of the session bounced for sellers to catch their breath. A close above 828’00 would have caught sellers unaware, but it held. Yet another missed opportunity. Whether buyers are unmotivated or scared, they aren’t accumulating – even as Tuesday’s repeated probes of lower lows failed to extend down.

An overnight intervention might have some immediate, optimistic, counter-trend effect. But I would expect it ultimately to resolve down. The drop underway is attracted to 811’25 and 790’50, while targeting 785’25 on the way back to and through November’s lows.

Indicators and Internals.
Tuesday’s repeated positive divergences among 3-minute indicators each produced its own bounce. But no bounce recovered a prior high before falling to a new relative low. Three consecutive such positive divergences were ignored, suggesting the market is aware of much bigger selling pressure coming down the pipeline. That would be scary because the result tends to fall at a steeper slope and to a deeper degree than the leg that preceded the ignored positive divergences. And the preceding leg was the 30-point, 45-minute plunge into and out of the Treasury secretary’s speech Tuesday.

Wednesday’s opportunities.
The econ calendar is pretty thin. Back above 830’00 might reach 832’50 or 836’50 overnight just as noise. The 840’00 area’s recovery would suggest that sellers are being absorbed and overcome. A break under 824’25 would start to signal that the decline was already resuming. [/pay]

[pay]Pattern notes.
That was weird. Sunday night’s low fell to a double-digit loss from Friday’s close at 852’75, but it was recovered entirely at the cash session open. Another dip triggered the morning’s bias-down signal, but it was followed by a probe of higher highs (maxxing out the 872’00 potential from Friday). The open’s dip to 859’00 required a retest, which was attempted several times intraday, but never fulfilled.

Apparently the cash session just needed to get out of its own way. An hour of narrow ranging just above 859’00 suddenly gave way so price could dive to 853’00 and lower – 1 point under Sunday night’s low. A bounce to 859’00 has been retraced entirely back to the low. Monday’s open had already recovered Sunday night’s loss, and Tuesday’s open might recover Monday night’s loss. That would be really weird.

Weirder, yet, would have been to extend Friday’s rally. Gapping down Tuesday would indicate that the market intends to compensate for Monday’s delay, not to mention Friday’s. A weird overnight recovery by Tuesday’s open would suggest something powerfully bullish going on. And gapping down Tuesday could still need to refuel sellers with an immediate bounce. But absent an overnight development that adds some previously unknown bullish perspective, the burden of proof is still on buyers.

Indicators and Internals.
Technicals have deteriorated into the overnight drop. Their lower lows haven’t kept perfect pace with price, but I wouldn’t characterize any of it as diverging positively. There doesn’t yet seem to be an opportunity to avoid a more substantial probe or break under Sunday night’s lows.

Tuesday’s opportunities.
Monday’s last significant price action was a bounce. Most of the bounce was retraced by the close, leaving just enough margin so that a gap down under the afternoon’s 860’00 low can signal a session-long decline. By the same token, a gap above 871’25 would signal a session-long rally. The economic calendar is relatively light, and not an issue soon after the open. [/pay]

[pay]Pattern notes.
Fridays are generally incapable of producing a session-long rally. Even if the open gaps above Thursday’s prior high, intraday trending usually ends soon after the noon hour. For that reason, there is nothing to be read into Friday’s early-afternoon peak. For that reason, and also because the early-afternoon’s peak wasn’t rejected. It was retraced back under the noon hour’s high, but only momentarily before recovering to session highs.

To repeat: After the last-hour dip fell from new session highs, it was recovered back to the prior high. This 6-point range now has more relevance than the open’s 14-point surge. The recovery didn’t close at new highs, despite probing new high territory. Instead, a lot of buying pressure was expended, and it wasn’t effectual.

This is only forms the basis for a potential sell signal, not the signal itself (parameters are described below). But it is in-line with the ongoing expectation for the next major trending to be down and not up. The nearby chart shows last week’s rally (green bars) as being contained almost entirely within the prior week’s range (red bars). To repeat: After the prior week’s dip had retraced back to the previous week’s close, last week’s rally retraced the dip. Sound familiar?

Last week’s rally emerged from increasingly optimistic investment opinion. The reinforced opinions could be a self-fulfilling prophecy that extends the bounce. If the optimistic opinion is right, then why didn’t the week-long rally accomplish no more than to retrace back to the prior week’s highs? Higher highs might be credible for extending higher, but the market hasn’t yet offered that setup.

Last week’s rally might seem more relevant to us because I was focused on the support of prior lows (yellow bars on the nearby chart) being chipped away sufficiently to finally allow the next downleg. This pattern doesn’t resemble any bottoming template, and an eventual retest of November’s low (red highlight) remains likely. A bigger detour might yet develop, but that is no more likely after last week’s price action than before.

Indicators and Internals.
MACD & RSI didn’t signal a specific resolution to Friday afternoon’s ranging. But the last-minute return back to session highs should have had some technical confirmation if the market intended to continue trending higher. Anything short of gapping up Monday would have difficulty extending higher past the first hour.

Monday’s opportunities.
Friday afternoon’s range recovered in interim dip to close back at session highs. The last hour’s recovery achieved nothing that hadn’t been achieved already intraday, wasting the recovery’s selling pressure. Maintaining an immediate break above 871’25 would have potential to 881’00 (the bias-up target is halfway there). But a break under the afternoon range’s ~860’75 interim low (the bias-down signal’s proxy is a couple of points higher) would trigger a pullback that could gain traction for a more substantial intraday decline. Econ reports won’t play a factor, but the stimulus bill’s debate goes forward. [/pay]

[pay]Pattern notes.
Thursday afternoon’s price action was waiting for a shoe to drop. Not necessarily another shoe, just any shoe. A reaction off of the 816’50 target accounted for only the first several points of the 20-point reversal on mark-to-market rumors. It’s a good rumor – accurate pricing, no matter how horrible, is at least a starting point to recovery. At least 10 points of the next leg up to 848’00 was also due to the rumor.

That was pretty much it for the day. The support of a two-hour consolidation was scalloped to produce a blip-up that reacted down 11 points. But that was just a move from the range’s upper-end to its lower-end. The session’s remaining hour was less volatile than the two hours that had preceded it.

The rumor saved the session from the open’s drop extending into the next downleg. The reaction stopped short of saving the pattern from its eventual resolution down. A third consecutive close back under 834’50 would have confirmed this. Gapping open under 830’50 or 826’50-827’25 would make up for the delay. But a recovery maintained above Thursday’s highs could trend higher throughout the day, into and out of the weekend.

Indicators and Internals.
MACD & RSI diverged negatively at Thursday’s late high. The reaction down didn’t find technicals firming, which obviously hampered the last hour’s last-minute bounce attempt. A test of the range’s lower-end is likely, regardless of its resolution.

Friday’s opportunities.
Afternoon ranges often continue ranging through the following morning. That would be a neat trick with the Employment Situation report due pre-open. Trending out of an afternoon range is begun by gapping beyond the range. That’s more likely considering the gravity of the news. So our first decision will probably be whether to ride the reaction, or to expect its gap to fail and reverse back into the range.[/pay]