Market Wrap

[pay]Pattern notes.
The narrow ranging stands in stark contrast to the rest of Wednesday’s emotionality. It isn’t just that the 8-point congestion lasted two hours, when every minute prior to that was trending either up or down. More amazingly, the extended pause seems unaware of the steep 14-point dive that immediately preceded it, not to mention the 24-point drop from session highs.

Tuesday’s rally had room up to 834’50, which held through the close despite being probed intraday. The week’s bounce overall had room up to 849’50 where Wednesday’s rally peaked, before closing back under 834’50. A bigger downleg was avoided Tuesday by holding 830’50 support, where Wednesday afternoon’s consolidation ranged. Essentially, Wednesday’s buyers expended their energy without gaining any new traction, and without substantiating Tuesday’s buying effort.

Since Wednesday’s reversal was already punished by dropping into negative territory, the primary question is whether any punishment remains to be administered Thursday. If so, then the secondary question is whether any delay is needed. Overnight price action seems to be answering the questions, already having dropped to 823’25 – twice, retesting the lows now after an interim bounce to 829’00.

Yesterday’s Trading Plan included a chart depicting several items of interest, including this week’s lower prior highs at 826’50-827’00. This was Wednesday afternoon’s support, and major damage was already done by then. If not recovered Thursday morning, much bigger damage becomes increasingly likelier leading into the weekend.

Indicators and Internals.
The first drop overnight to 823’50 double-bottomed with a positive divergence that triggered a 6-point rally. Negative divergence at the rally’s peak triggered a retest of 823’50. Positive divergences into the low’s retest came too early to be effective, and have been ignored. A low here is unlikely.

Thursday’s opportunities.
More econ reports attack the market from 8:30 through 10:00. Normally I would expect price action to become paralyzed from anxiousness in the afternoon hours ahead of Friday’s Employment Situation report. But if Thursday morning’s Jobless Claims is a triggers trending, then that trending could extend while anticipating similar news Friday. Regardless, pre-open econ reports will need to reverse the overnight losses before I stop looking for new weekly lows. [/pay]

[pay]Pattern notes.
The optimism out there is getting pretty thick. It reached its thickest Tuesday at 2:00. But for a couple of early probes into negative territory, the balance of the session had developed entirely in positive territory. The open had gapped up to probe Monday’s high, which was probed again before the noon hour.

Sellers were less interested in the second probe’s failure than in the first, opening the door to a higher target at 834’50. The higher target extended 5 points higher – not from new buying pressure, just existing buyers stretching themselves optimistically thinner. The extended optimism was retraced entirely through the close. The rest would become jeopardized under 830’50.

Breaks under 830’50 might still be absorbed and recovered before becoming a new downleg. But there is room up to 849’50 before considering something more substantial than an extended bounce is considered. Several of the more prominent reasons are illustrated on the nearby chart.

– Prior lows are contained within the red square. The only support this area can offer anymore is its own lows. And that support is only temporary.

– The same range containing the prior lows never offered much support when tested from above. See the green highlight to the right? This is “lower prior highs” that was created Monday and Tuesday. The earlier range’s “lower prior highs” were ignored on the way down, so Tuesday’s rally acknowledged it as resistance.

– Circled in green is the last consolidation to produce a higher high. Its “lower prior highs” (not indicated) were acknowledged only briefly on the trip back down. Tuesday’s high peaked upon retracing 61.8% into the consolidation, a healthy correction.

Any recent strength can be attributed either to resolving unfinished business above so that selling can be less inhibited. This undermines any bullish theory of accumulation. And meanwhile there remains unfinished business below, most immediately Monday’s pre-open “new Globex trend extreme” that requires being retested intraday.

Indicators and Internals.
Technicals left no signals outstanding at Tuesday’s close. But at 10:33pm there has been significant deterioration after several hours of trying unsuccessfully to recover above 834’50.

Wednesday’s opportunities.
Back above 834’50 would have potential to attack 850’00. Meanwhile, “lower prior highs” around 826’50-827’00 (the chart’s green highlighted area) is going to try stopping the decline’s resumption. When it fails, the decline resumes. There may be some residual support to slow the selling, but 813’00 should be a big attraction. That might be enough selling for one day, unless 811’25 were also broken as support. The econ calendar remains active, and it’s only getting more so on Thursday and Friday.[/pay]

[pay]Pattern notes.
A break under 813’00 Monday afternoon wasn’t expected to be easy. And it wasn’t even likely with too little time remaining to work through pre-open congestion. The13-point surge back to session highs at 827’50? Now, that was surprising. But it was still only noise.

The surge’s last 6 points were signaled as a short-squeeze above 821’75, which was retraced entirely by the close. That was the second confirmation the surge was all about refueling sellers. The first confirmation was that the morning’s high stopped the surge. The third confirmation would be a break under the 813’00 area that gave Monday afternoon’s sellers such a hard time.

Its break remains likely, along with at least an intraday retest of Sunday night’s “new Globex trend extreme” at 806’25. The only reason not to hold short overnight was the path being likely to include another bounce overnight. In fact, 830’00 was tested within 1 tick momentarily. Now back under 819’25 should put 813’00 back into play, and sellers back in control. Another probe above 827’50 would more likely extend the bounce.

Indicators and Internals.
A simultaneous negative divergence at overnight highs was responsible for a 9-point drop back to 821’75, where the cash session’s short-squeeze was triggered and then retraced. There isn’t any other unfinished business.

Tuesday’s opportunities.
The econ calendar remains active, with the morning’s reports spread out from pre-open through 10:00. Much depends on whether the reports are greeted from above 826’00 or from below 819’00 – and the first one or two reports might be needed to push the market beyond the range.[/pay]

[pay]Pattern notes.
Last week’s round trip started optimistically by gapping up Monday. Optimism was alive and well that afternoon, when a threat to turn negative intraday was recovered. Wednesday’s optimism was self-evident from its opening gap up before the FOMC news still extended higher after the news.

Perhaps the most impressive display of optimism was at Thursday’s close. Its session-long decline dropped 31 points from Wednesday’s close, attacking Tuesday’s close that had preceded Wednesday’s gap up. Sufficient time remained to actually materially fill the gap and to resolve its magnetic attraction. Instead of trapping more shorts that could fuel a bigger bounce, optimism remained alive and well.

Optimism died soon after Friday’s opening blip-up. A pre-open dive to new relative lows was recovered momentarily back into positive territory. The balance of the session trended down. Its very last-minute price action firmed – call it an homage to the week-long “ineffectual optimism.”The cash session’s close had already ended under both the week’s lows and the prior week’s close (highlighted red on the above chart), for the first actual signal of the trend reversing down.

Last week’s lows and the prior week’s close share something else in common. They represent the retest of early December’s lows, which were the first reaction down from Thanksgiving’s rally. The rally resumed, so retracing back to the reaction’s low in January meant the rally had ended. The market has since been chipping away at this support.

November’s low has always required a retest, probably on the way to sharply lower lows. If there is too much delay past Monday’s open before resuming the decline, then it might not resume before late-afternoon or Tuesday. The initial slope requires no specific character, but the initial slope will help to place a timeline on the bigger decline it would imply.

Indicators and Internals.
MACD & RSI did not make lower low with Friday’s last low. But any improvement from their prior lows was only minor, and any minor improvement is easily dismissed when occurring late Friday afternoon. Regardless, there is no unfinished business above the market to attract price higher.

Monday’s opportunities.
Sunday night’s Globex open wasn’t very remarkable, with one exception: its price is more in-line with Friday’s optimistic post-close gain, above the cash session’s lower close. The 824’00 level has emerged as near-term support, which seems temporary, and its break should drop to 821’00-822’00. A break there would be bigger news, especially if technicals have deteriorated, putting back into play Friday’s 814’75 and 804’75 targets. Back above 826’50 first would suggest the decline’s resumption will be delayed.

The morning’s econ calendar is busy enough. Its items aren’t the highest-profile, but they’re all relevant and spaced out to keep the opening sequence on its toes. By the way, the calendar is active all week long, right up to Friday’s Employment Situation report. And all this with the Senate debating “stimulus” in the background. Should be fun! [/pay]

[pay]Pattern notes.
Thursday’s session-long decline fulfilled the open’s signal, ticking down into the close. The drop started at Wednesday’s intraday low, a big gap above Tuesday’s close, which is where Thursday’s lows settled. That’s a lot of selling. But it isn’t a trend reversal – let alone a sealed top – until closing under a prior pattern’s low.

Thursday’s close did finish under a prior pattern’s highs, the two-week consolidation that preceded Wednesday’s gap up. Failing to recover immediately back above those prior highs would signal that Wednesday’s breakout had failed.

This is similar to the rule that already triggered Thursday, when Wednesday’s breakout was not followed immediately by a second consecutive higher close. Not confirming the breakout doesn’t equate to signaling the breakout failed. A failed breakout gives way to a bigger reversal, whether to refuel for another breakout attempt, or to trend in the opposite direction.

Indicators and Internals.
Despite bouncing nearly 9 points from Thursday’s last-minute low, the overnight rally’s 3-minute RSI has managed repeatedly to avoid becoming overbought. Dips, however, have easily become oversold. Sellers are making the effort.

Friday’s opportunities.
This being a Friday, any trending that comes out of the open is likely to persist well past the noon hour. Afternoon timing windows tend to collapse on each other as participants exit on a different schedule than normal. So an early break under Thursday’s 840’00 lows that doesn’t recover by 10:15 would be likely to extend. The same goes for a break maintained above 851’00. The econ calendar is loaded, with high-profile data due at 8:30, 9:45 and then 9:55.[/pay]