Market Wrap

[pay]The Beige Book’s reaction down to 836’25 and its reaction up to 841’50 each have had more than enough time being probed by several points to see that this market isn’t yet interested in sustaining a trend away from the mid-day range.

And since the drop’s “pivotal low” (the low prior to the actual low) was touched, an eventual break under the 832’50 actual low is all but required. Any dip under 836’25 is likely to then extend down into the close, targeting 827’00, so long as bounces hold any test of 838’00.

Not extending back under 836’25 by 3:35 or so would be similar to recovering the bounce limit – not necessarily a buy signal, but also signaling that sellers have lost their near-term traction. And similar to yesterday’s close toying with its bounce limit, the following session’s open can compensate for the delay by gapping sharply.

At the very least, it is relevant that this session did remain under pressure at major landmarks. The afternoon did not trend down, but buyers didn’t gain any traction. And that helps to keep the decline’s momentum intact for at least a brief lower low tomorrow.

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[pay]Pattern notes.
They threw a lot at support Tuesday, but it didn’t break. The overnight bounce’s failure, its probe under Monday’s lows, the mid-day bounce’s failure and its probe of lower lows. Sellers certainly didn’t gain any traction for their efforts, but that doesn’t default to being bullish. At least, not for that reason alone.

A close above the morning’s high would have been bullish. A solid close in positive territory could have been bullish. Instead, the optimism was ineffectual despite preventing the decline’s resumption. Tuesday’s close back at the 866’00-868’00 area could be made bullish by gapping up Wednesday above 873’00-874’00. At least the 880’00 area would be targeted, and potentially last week’s highs.

Another test of 860’00 support couldn’t hold yet another retest after chipping away its support so thoroughly Tuesday. Of course, Tuesday’s third or fourth test should have given way already. If it does give way, then 853’50, 847’00 and 841’00 would be in-play. The oncoming three-day weekend makes this renewed downleg more difficult if not underway by Wednesday’s close or Thursday’s open.

Indicators and Internals.
RSI became agonizingly complacent as Tuesday morning’s consolidating wore on. It was very easy for the first bit of selling to produce an oversold reading. It was also easy for a second test of 860’00 support to produce a positive divergence. But the afternoon action settled gravitated back towards complacency, so the next trending attempt will need to be productive (i.e. break beyond a prior high or low) to avoid losing traction.

Wednesday’s opportunities.
Several econ report are due pre-open. Early trending attempts might be difficult to maintain since Beige Book is due at 2:00. Anxiousness ahead of this item tends to paralyze price action. That’s getting to be less reliable in a negligible interest rate environment where everyone knows that the Fed isn’t considering a rate hike. So a gap up above prior highs would probably get a benefit of the doubt for starting a corrective bounce going into the weekend. In case sellers are back at it, a bigger drop to lower targets could find Beige Book bailing out buyers.[/pay]

[pay]Pattern notes.
Having left outstanding the 880’00 target to maintain the decline’s momentum through the weekend, sellers were able to extend the drop another 25 points to 860’25. And having lacked any intraday bounce above prior highs, the last half-hour surged 8 points to do just that. To the extent that two days can form a tradition, it appears that sellers are finding ways to preserve selling pressure as unfinished business for the following session.

Just closing under 866’00-868’00 would have made Tuesday’s open likely to gap under prior lows at 853’00. So the cash session’s last-minute bounce to 866’00-868’00 either constituted the corrective bounce, or else most of it. The bounce has room up to 872’00 overnight.
This downleg’s ultimate objective is to retrace last year’s last week rally. Monday’s low retraced so much of it – both measured against the interim gain, and for dipping back under prior highs – that the last week rally’s origin is already likely to be broken eventually, regardless of any interim bounce.

Indicators and Internals.
Monday’s decline ignored multiple positive divergences among 3-minute RSI, resolving down instead of first bouncing above prior highs. This suggests the smart money is aware of bigger selling coming down the pipeline. It’s not a sell signal, but it does argue for selling bounces. Even the last-minute bounce failed to lure either RSI into overbought territory.

Tuesday’s opportunities.
The very late sideways ranging makes a break under 864’00 as possible as a bounce up to 872’00. But the very late sideways ranging also makes either likely to resolve in lower lows, targeting 853’50. A gap under 853’00 would likely trend down intraday 15 points to the 838’00 area. Several econ reports are due pre-open, and earnings reports are starting to dribble in, as well. There’s always potential for a bigger bounce, but at this time any bounce remains likely to resolve down in new lows.[/pay]

[pay]Pattern notes.
Pessimism twice got excessive again Friday. First was a pre-open surge attacking 915’00, above the prior session’s high and likely to be retested intraday – but it wasn’t. Second was the overnight pullback low to 900’00 that launched the surge. There wasn’t a single uptick when revisited later as support, making its retest as resistance likely, but it wasn’t. The surge was produced by news, just one reason why neither retest was required, just likely.

Ignoring both tests in the same day reflects pessimism, which tends to appear towards the end of selling and not near its beginning. Unless neutralized like Thursday’s choppiness neutralized Wednesday’s pessimism, the drop could end this week’s ability to extend down this week. It’s not yet enough to off-set many other bearish factors, but should be monitored anyway.

Selling resumed in the afternoon with barely enough time to still be considered durable. And it did endure, closing under the morning’s lows, giving the effort relevance. An immediate corrective bounce can’t be ruled out, but only a corrective bounce, so long as Monday’s open doesn’t gap up above 893’00. Anything less is likely to resolve down.

Friday’s last downleg targeted the 880’00 area, another 3-5 points under the actual low. The bigger picture eventually targets the prior weeks lows around 853’50 – where the charts would allow a pause. This bigger picture is currently in-play, and it remains in-play so long as 893’00 is not recovered through a close.

Indicators and Internals.
Several hours separated Friday afternoon’s new session lows from the prior sessions’ lows – both the open’s and the noon hour. This undermines confidence in the comparison between technicals accompanying each. The afternoon’s RSI improvement is interesting because it is repeated on all time frames. But MACD deteriorated further into the close.

Monday’s opportunities.
It’s possible that Friday’s last-minute lower low pushed a little too far, enough for Sunday night’s open to attract buyers. Any such strength should be temporary if technicals deteriorate into a test or retest of 893’00, and then price reverses back under 888’00. The next lower objective is 866’00-868’00.

Monday’s econ calendar is empty, but gets busier into the week. Beige Book and various central banks’ interest rate decisions add some extra data points for the market to navigate. All the while looking ahead to next week’s inauguration, and the quarterly earnings onslaught that reaches onslaught stage on inauguration day.[/pay]

[pay]Pattern notes.
Trend watch update: Wednesday’s aggressive selling off of new highs gave potential to a limited drop, only a correction of the recent rally. Then came Thursday. The gap down threatened to repeat Wednesday’s session-long decline which would have been excessive pessimism. The session-long ranging nearly rendered itself as “ineffectual pessimism.” But Thursday’s session was just right, and the Bears are are headed home from their picnic in the woods.

Wednesday’s decline was unlikely to extend immediately with the Employment Situation report just around the corner. The session wasn’t even likely to trend, only to range. Slightly higher highs back to 908’00-909’00 were likely, which was finally met overnight upon probing the range’s upper-end.

Thursday’s tempered selling neutralized Wednesday’s aggressive selling. Thursday’s highs neutralized the magnetic attraction back to the gap at Wednesday’s close. Prices are initially firmer overnight, reflecting last-minute optimism, making it more difficult for Friday’s news to satisfy the anticipation, let alone provide an upside surprise.

Trending remains unlikely until nearer to the news. Price action prior to that might offer more clues to the immediate reaction – and more importantly, to the reaction’s reaction. A break maintained under 895’00-896’00 would trigger a session-long decline, which could be exacerbated for being Friday. Above 908’00-909’00 could immunize the session from selling pressure through late-afternoon.

Indicators and Internals.
MACD & RSI left no unfinished business Thursday. Not much was created anyway, since buyers and sellers both relinquished power to the range. That situation tends not to repeat the following day.

Friday’s opportunities.
The Employment report is due at 8:30. There’s little room or time for an initially favorable reaction if the session intends to decline intraday. Wednesday’s break is still relatively young, and there’s a weekend of illiquidity just hours away, so limp selling probably won’t gain traction. A rally can’t be discounted, whether or not session-long, but we’ll let reaction’s price action dictate that.[/pay]