Market Wrap

[pay]Pattern notes.
Is this a bull market, after all? The reason I ask is not in spite of Wednesday’s 28-point drop, but because of it. Rather than spend time chipping away at Monday’s prior lows, Wednesday’s open gapped under them and extended sharply lower through the day. That’s pretty aggressive for having printed new trend highs just one day earlier. A bear market implies reversing to new lows. It also implies steeper slopes on uplegs than on downlegs. One day does not constitute a leg, so I’m not yet rendering judgement on this. But it’s something to monitor…

As for Wednesday’s drop, the session-long decline was signaled by gapping down under Monday’s prior lows. It was confirmed by maintaining the gap down. It wasn’t for lack of trying, just for lack of staying power. Session-long declines tend to be extended the following day – maybe only a little if the open gaps down, maybe a lot after a gap up fails to hold.

Indicators and Internals.
The overnight drop’s low bottomed when both 1-minute and 3-minute RSI diverged positively. The setup produced an 8-point gain that has now been retraced entirely. So far it’s still just noise in the range, but likely to probe the lower-end since oversold 3-minute RSI is at a new low along with price.

Thursday’s opportunities.
ADP’s numbers offered a glimpse into the reliability of employment data estimates. The price reaction offered a glimpse into the data’s relevance. I expect only a temporary reaction to Jobless Claims this morning with the duration tempered by a focus on unreliable estimates of tomorrows’ Employment Report.  Neither the initial reaction nor the reaction’s reaction are likely to be shallow, just brief, before the balance of the session becomes susceptible to ranging narrowly for through the afternoon. [/pay]

[pay]Pattern notes.
Remember how Monday’s session nearly answered several outstanding questions? Tuesday’s session answered those questions. The same way. A probe of new highs was rejected back under prior highs, but not back to morning lows.

This probe was more substantial, every bit as substantial as Monday’s probe could have been, testing 936’00 and then 6-7 points higher. This rejection back under prior highs was also more substantial, barely touching negative territory, but remaining under pressure through the last half-hour.

With only several brief exceptions testing Monday’s close as support, the session traded exclusively in positive territory. Combined with the morning and afternoon probes above prior sessions’ highs, that’s essentially “ineffectual optimism.” All the chipping away at Monday’s close under 927’25 compares optimistically to what sellers could have done, which is chip away at Monday’s lows under 920’00.

The price action is toppy, and vulnerable to momentum reversing down, lacking only a signal to trigger reversal. As with Tuesday’s session, a gap above prior highs is the most credible path for a recovery, but only if the gap is maintained through the opening sequence (Tuesday’s was retraced through 10:15-10:30).

Indicators and Internals.
Multiple technical divergences intraday Tuesday were able to signal sizable reversals within the range. A late-morning signal seemed a little too vague and ill-timed to be credible, but its buyers produced one of the day’s biggest moves. The afternoon’s positive divergence was definitely ill-timed, and it was nominally productive before ultimately reversing back to its origin. There were no outstanding signals at the close.

Wednesday’s opportunities.
Tuesday’s ineffectual optimism facilitates a gap down Wednesday under the morning’s 924’50 low, perhaps lower. In fact, S&Ps barely hesitated dropping back down to the afternoon’s 926’25 lows after the cash session close. So overnight weakness would be credible for extending down ahead of Wednesday’s open. Back above 933’50 would instead let buyers start gaining traction.

The econ calendar is light on high-profile items. Two provide employment stats, which might help to inform a market reaction to Thursday’s Jobless Claims, and to Friday’s biggie – the Employment Situation report. [/pay]

[pay]Pattern notes.
Monday’s session tried to answer several nagging questions, mostly revolving around last week’s low-volume rally. For instance, was it the product of speculators exploiting the absence of bigger monied participants? This would have meant its direction was counter-trend. What about Friday’s close above the prior month’s high? Its volume didn’t confirm it was any more than noise at the margin.

The first day back to real trading didn’t extend the rally. It wasn’t for lack of trying. A recovery from overnight losses did probe Friday’s high. And the reaction down from there tracked the template that called for rejecting a probe of new highs. But the afternoon’s 16-point drop avoided new session lows by 2 points because the morning’s low was pretty deep.

Monday’s session tried to answer these questions, and others, and failed. A bounce into the close nearly recovered positive territory, but didn’t. The session nearly qualified as a Pivotal Reversal setup, but didn’t. Sellers nearly took control with a negative close, but didn’t.

Monday’s ineffectual sell-off could be rejected by gapping up above Monday morning’s 931’50 high, and then quickly extending through its 934’25 session high. They’re both likely to be retested in some fashion anyway unless Tuesday’s open gaps under 917’00. Breaking Monday’s highs could renew the rally’s momentum for a 2-3 day run. Holding the highs’ retest would be toppy, but still lack the trigger for reversing momentum down.

Indicators and Internals.
RSI was suspiciously muted during Monday’s selling. The 1-minute repeatedly avoided becoming oversold despite otherwise productive selling bouts. The 3-minute’s first encounter with being oversold did produce a lower low, where its second encounter was quickly neutralized.

Tuesday’s opportunities.
Several econ reports due at 10:00 could accelerate or reverse any initial trending already underway. A probe above 931’50 should extend higher if 934’25 hadn’t yet been touched. Testing and already reversing back under one or both would likely react down sharply. Any other permutation would still have potential to rally further.[/pay]

[pay]Pattern notes.
Much is being made about the substantial year-change rally – almost 80 points from last week’s pullback low through its high, or 9.3%. Friday’s early price action put into play a 936’00 target, and immunity from selling pressure through Wednesday’s open. The two may prove to be mutually exclusive.

The target was nearly met already, within 3 points at Friday’s last-minute high. Either the ultimate target is much higher, or an unsustainable bubble has formed. Momentum hasn’t reversed down, and higher highs are likely Monday. But the immunity from selling pressure requires a close above 943’00-944’00. Meanwhile, the rally become vulnerable to reversing down sharply upon testing Friday’s outstanding target.

The nearby 1-minute chart depicts Friday’s high as it formed a Double Top (circled red). Its reaction extended beyond the cash session close (red bars). The low measured 61.8% from the Double Top’s swing, a popular stopping point for the pattern. Double Tops were made to be broken, there is nothing stopping Sunday night’s open from immediately beginning its recovery. There is room down to 919’00 before suggesting that buying has been expended already.

Indicators and Internals.
The above chart also depicts both MACD & RSI diverging negatively on the Double Top’s second high. The 1-minute readings barely improved before the futures settlement, but 3-minute readings continued to deteriorate. Last week’s low volume makes last week’s gains all the more suspicious. The cats were away, but they’re coming back now. Bigger money can still take the baton hand-off, but a sell-off Monday would mean the race had already ended.

Monday’s opportunities.
So long as pullbacks hold 919’00 (preferably 922’00) my posture will be long, for a probe above Friday’s highs targeting 936’00 by 1-point either way. We should look for signs of topping there, but be prepared for extending another 7-8 points higher to 943’00-944’00.  The day’s two econ reports aren’t very high-profile, but one is at 10:00 which can leverage its impact if there’s a surprise.[/pay]

[pay]Pattern notes.
Are prices about to come back down to earth? The highest target for the past two weeks has been 892’00. It hasn’t even always been in-play. But one thing led to another, and eventually Wednesday’s session extended up nearly 20 points from its open around 892’00. But it all evaporated before the weekend.

The cash session close equated to 904’00, just 4 points off the high. Fifteen minutes later, the futures session closed 2 ticks under 892’00. Does it count? Does closing back under the 892’00 target, after having probed it repeatedly, extensively, and substantially throughout the day, does closing back under 892’00 say that that the target held as resistance so a downtrend can begin?

• Yes, and no. The last-minute drop does forge the way for sellers Friday, but it doesn’t require them to act on it. The gap back to Wednesday’s cash session close will want to be filled, but need not.
• Yes, and no. The deeper and deeper probing of 892’00 all occurred on the year’s last session. Influences other than accumulation or distribution were at work, so the probes were artificial.
• Yes, and no. Where breaking back under 886’50 through 880’50 would put sellers back in control, recovering from any of these levels would at least retest Wednesday’s high.

Wednesday’s 908’00 high is a line in the sand, and to close above it would buy the rally another upleg. Retetsing 908’00 and then closing back under 892’00 would simply trend down. Accumulative and distributive efforts won’t be so prevalent during Friday’s stand-alone session, but it’s still a light volume day. So instead of false starts and stops, early trending will be likely to persist well through the noon hour.

Indicators and Internals.
MACD & RSI didn’t became overbought until the mid-afternoon attacks on 905’00. They were not bullish at Wednesday’s last-minute high. And only 3-minute RSI because oversold into the post-close drop.

Friday’s opportunities.
Wednesday’s last-minute dive did some major damage to the intraday chart. Friday’s open is free to ignore the plunge and simply open back up towards Wednesday’s highs. That’s a lot of ground to cover, so assuming it isn’t, I would become open to shorting if 901’00-902’00 is tested as resistance. And under 888’50 should put Wednesday’s highs out of reach.[/pay]