Market Wrap

[pay]Pattern notes.
The morning’s retracement of Tuesday night’s gain was complete, and in that regard Tuesday’s last-minute setup was fulfilled. But Tuesday’s session-long decline setup wasn’t fulfilled, because its session-long decline wasn’t followed by a second day probe of lower lows. That probe is still required.

No template tracks Wednesday afternoon’s relentless rally. The nearest match is the one last Thursday’s recovery eventually followed, which had required a complete retracement of last Thursday afternoon’s gains. Similar to Tuesday’s fulfillment of this setup, if Thursday’s open isn’t gapping down to begin rejecting Wednesday’s recovery, then it is in order to test recent highs at 850’00-852’00 first. And also similar to Tuesday, it is entirely possible for Thursday to end under Tuesday and Wednesday’s lows.

As for gapping down, Wednesday’s last relative low before the last half-hour was 825’00. Gapping open below it would signal a session-long decline. So it is interesting that Wednesday night’s 6-point spike up hasn’t improved and only retraced in three hours since then. Asian markets haven’t yet opened as of this writing, but look out below if that doesn’t reinvigorate buyers.

Indicators and Internals.
Technicals avoided becoming overbought until very late Wednesday afternoon. The only unfinished business left open was at Wednesday’s low, whose 3-minute RSI was also the lowest oversold. The degree of selling there was too strong to be part of a durable bottom, no matter the degree of rally that followed, so its retest remains likely.

Thursday’s opportunities.
Housing Starts and Jobless Claims highlight the day’s econ calendar, either one capable of eliciting strong reaction, and either one capable of explaining why S&Ps haven’t had a lasting reaction to AAPL’s earnings. More high-profile earnings are scheduled, mostly after the close. Thursday’s open should be obviously on its way to either 850’00-852’00 for a new downleg to begin, or else gapping down under 825’00 to try signaling a session-long decline underway.[/pay]

[pay]Pattern notes.
Tuesday’s drop did a lot of damage to the chart:

• Its opening gap down extended under all prior relative lows in time to signal a session-long decline.
• Fulfilling the session-long decline signal with a session-long decline makes lower lows likely at some point the following day on Wednesday.
• Tuesday’s close was under last week’s prior relative lows (red highlight), confirming last week’s break under December’s prior lows (blue highlight).
• Tuesday’s close was also under December’s lows (green highlight), which had been the Thanksgiving rally’s first reaction low.

Having done so much damage to the chart, sellers have bought time and room for a corrective bounce to refuel. There is no requirement to bounce, nor is there any specific timing – whether completing overnight, or not beginning until probing new lows intraday.

A bounce was already being attempted into and out of Tuesday night’s Globex open, from 797’50 to 813’50 as of this writing. Its potential is 819’00, so long as pullbacks hold any test of 810’00 support.

Indicators and Internals.
RSI is doing something overnight it did only grudgingly intraday, actually becoming extended. In this case it is overbought. The underlying strength it reflects doesn’t add credibility to the bounce’s potential, but it does make the first sell-off attempt likely to recover at least once.
Wednesday’s opportunities.
Retail econ reports are due before Wednesday’s open. The overnight bounce ensures some sort of reaction, regardless of whether the gain is maintained into the news. So long as the mood hasn’t inverted overnight, Wednesday morning’s objective is likely to focus on finding short-entry opportunities.[/pay]

[pay]Pattern notes.
Friday’s expiration session gapped up 15 points, fell to a 14-point loss, then recovered to close nearly 10 points positive on the day. Filtering out the noise leaves us with two probes above prior highs that weren’t maintained through the close. A probe under prior lows also wasn’t maintained, but buyers failed more opportunities than did sellers.

Expiration session characteristics tend to repeat the following day, and the Globex session surged 15 points to higher highs Sunday night, then fell 30 points into Monday’s 11:30am close. Buyers failed yet another opportunity, depositing S&Ps back where Thursday’s session closed. As if nothing ever happened.

Well, not quite nothing. Those failed rally attempts either chipped away at resistance, or else represent distribution. As evidence of the latter, it’s interesting that the latest failed rally was reversed down to close under three prior highs. That’s a big something, and not because it reveals a vulnerability to a bigger downleg. Rather, if buyers can overcome that much selling pressure, then quite a rally leg should soon be underway.

Sellers get a benefit of the doubt on any break under the 832’00 area. I don’t know what kind of trending – if any – to expect during inaugural ceremonies. If the ultimate resolution is down, perhaps this would be an excellent opportunity for yet one more failed rally. But be careful if one catches.

Indicators and Internals.
The decline since Sunday night’s open has essentially ignored three consecutive RSI positive divergences among both 1-minute and 3-minute. Despite the setups, price continued dropping after only the most obligatory bounces. Typically this means the market is in touch with more serious selling coming down the pipeline.

Tuesday’s opportunities.
Chart patterns for inaugural sessions aren’t very predictable. But it’s just as difficult for sellers to gain traction as it is for buyers. That said, sellers get a benefit of the doubt, at least early on. But if the range holds early on, then it should hold through mid-afternoon. [/pay]

[pay]Pattern notes.
Thursday’s market did everything needed to trigger a steep rally. Probe important targets intraday, check. Attempt and fail a new low during the noon hour, while MACD & RSI diverge positively, check, double-check and triple-check. Recover the noon hour’s entry by 1:20, che…

Oh, wait, the noon hour’s entry wasn’t recovered until several minutes later. The timing factor normally becomes more important when the market faces abnormal influences like option expiration. Apparently not this time as S&Ps surge 28 points in less than 90 minutes.

Had the market staged this reversal through the open, it would have formed a near-term bottom. That may still be the case, but the surge left a lot to be desired because it left very little on the table.

The surge extended to 36 points a rally already underway off the low from two hours earlier. The aggressiveness was rewarding, but not rewarded, since the intraday probe of positive territory wasn’t maintained through the close. The probe of positive territory peaked upon testing Wednesday afternoon’s 846’25 prior high, the last downleg’s origin.

Expiration influences are somewhat accountable either for driving price too low to be maintained near-term, or for exacerbating the new low’s reaction, or probably a little of each. So long as expiration didn’t inhibit Thursday afternoon’s recovery and 846’25 doesn’t maintain an immediate recovery Friday, sellers are still very much in the game. Otherwise, they might not get another chance before next week’s inauguration.

Indicators and Internals.
3-minute RSI was overbought for the last 18 points of Thursday’s rally. The 1-minute diverged negatively for most of that time. It would be a tale of two markets, except there is only one, and it is conflicted. But so long as this is the case, then it is obvious that expiration influences are dominant.

Friday’s opportunities.
Thursday night’s Globex open gapped up and eventually probed the cash session’s highs. Rejecting the gain through Friday’s open would be the first signal that what expiration gaveth was being taken away. Declining Friday would also make Tuesday likely to drop. Maintaining early strength instead would target 866’00-869’00, but not necessarily higher next week. [/pay]

[pay]Pattern notes.
Wednesday’s last-minute price action avoided resuming the decline attempt. That didn’t shelter the market from its requirement to probe Wednesday’s intraday low, which had avoided being touched again. That changed after Wednesday’s close when the market slid to new lows.

Before the close I displayed an inverted Head & Shoulders pattern whose initial break could have been down. Its target area was a 3-point range at 826’25-828’25. So far, overnight lows have touched 828’25 and bounced back to the 836’25 level whose cash session break was needed to signal the decline still intact. Now it is valid resistance.

This constitutes a new low and its recovery. It doesn’t need to be repeated during Thursday’s cash session before a rally can begin. But that would doom the rally to failure, eventually. So long as S&Ps are nearer or below 836’25 and not much higher, a repeat of the low’s overnight probe would be expected. If so, we’ll be on lookout for that low to not hold.

Indicators and Internals.
Overnight extremes have taken 3-minute RSI to extremes. It hasn’t left any unfinished business that needs to be resolved, but it does reflect a willingness to provide action.

Thursday’s opportunities.
PPI and Jobless Claims highlight the econ calendar pre-open, followed by the Philly Fed survey after the open. The early data could spark selling that is saved by the later data. The later data could enhance trending triggered by the earlier data. But if there isn’t bottoming by mid-morning, this close to expiration and a three-day weekend, then a recovery would be less and less likely.[/pay]