Market Wrap

[pay]Pattern notes.
Two morning pullbacks produced new session highs into noon. Several afternoon dips produced a 13-point rally to new session highs into the close. The cash session’s 888’00 high was probed into the futures close, adding nearly 2 points afterwards. Having held prior lows intraday, the pattern was more vulnerable to gaining ground. But the aggressive slope borrowed heavily from what could have been substantial follow-through Wednesday.

This being the year’s last session, price behavior is influenced to factors not generally encountered on other days. Tuesday offered a glimpse when the afternoon repeatedly probed prior highs as support, dumping sellers like so much ballast. The last hour wasn’t going to range sideways, and sellers didn’t retake control, so the only remaining direction was up.

Similarly, Wednesday’s open might be entirely at odds with Tuesday’s last-hour surge, rejecting it at the open. That might have significant repercussions intraday, but probably not affect the overall outlook.

Indicators and Internals.
1-minute MACD & RSI diverged negatively as S&Ps firmed further after the cash session close. The 3-minute RSI became more overbought. This would have made a bullish combination intraday. But coming at the close requires the next session’s open to gap. Gapping higher could expend all available near-term buying pressure, or but a gap down that holds above 883’00 prior highs would be likely to recover.

Wednesday’s opportunities.
Extending up another 4 points to 892’00 would allow room down to 883’25 without sellers gaining traction. Holding a pullback first down to 883’25 would make a recovery up to 892’00 likely. But also is vulnerable to extending down. And gapping under 880’50 could find 873’00 and 864’00 under attack before the close.

Jobless Claims highlights Wednesday’s econ calendar. Wednesday afternoon’s price action might try trending into a narrowly ranging last hour, but probably at higher levels if sellers can’t retake control at the open. [/pay]

[pay]Pattern notes.
Monday’s price action seemed to have reasserted the template that was interrupted by noise Friday afternoon. That morning’s gap up had retraced back to Wednesday’s prior close where prices remained through the noon hour.

A normal day would have extended the morning’s retracement that afternoon by a factor of 2-3 times. But holiday illiquidity returned only noise as the morning’s range persisted into the close. The normal template includes a second-to-last hour bounce that resolves down sharply, and Monday’s second-to last hour bounce seemed to back in the template’s groove.

The bounce should have peaked at either 859’00 or 864’00. It peaked at both. First at 859’00 where technicals had already stopped improving. Then an oddly-timed surge up to 864’00 offered the possibility that sellers were doing extra refueling, preparing for an extra-long trip.

That would have been the case, but for a very last-minute surge up to 871’00that momentarily probed Friday’s highs. This is ineffectual optimism, and it’s still the fourth inside day within Monday’s range, but it doesn’t preclude Tuesday’s open from attempting higher highs. Perhaps I’ll get the opportunity to sell 874’00-875’25 after all. This would give 874’00-875’25 the opportunity to break higher, targeting 883’00 and potentially 892’00.

Indicators and Internals.
S&Ps have firmed slightly so far after hours, adding nearly 2 points up to 873’00. This is actually the second test of 873’00, and also the second time technicals diverged negatively here. Back under 869’50 overnight might already retrace the rest of Monday’s last-minute 7-point surge before the next session has even opened.

Tuesday’s opportunities.
Monday I was obviously overly-selective among trading opportunities, and in-turn surprised by the market’s reaction. The opening 15 minutes of volatility were anything but, so the next 15 minutes of plunging squeaked through my timing windows before an entry could be determined. And the afternoon’s positive divergence was limited to the 1-minute MACD & RSI, so the bounce should have been limited, as well. It wasn’t.
The upside to being selective is the downside is often avoided. The downside is that often the upside is avoided, too.

Sessions that get away like Monday’s did are often followed immediately by sessions that also reward for fast action. Modest initial strength Tuesday might extend to far to wait for the opening sequence’s official signal, far enough to already reverse short. Early weakness might be crushed under its own weight, quickly retracing the last-minute7-point surge and then some.

Retail sales due pre-open are expected to be depressing, and Consumer Confidence at 10:00 could be very interesting. Wednesday and Friday are full days, although Thursday’s one-day interruption could inhibit volatility Wednesday afternoon. Natural forces of supply and demand remain extraordinarily vulnerable to holiday-hampered volume and year-end influences.

Don’t forget to add any stock request to the blog post linked here, and I’ll review it Thursday morning.[/pay]

[pay]Pattern notes.
Friday’s opening gap up was retraced entirely back to Wednesday’s prior close. The upward bias didn’t resume before the noon hour’s end. Normally this pattern is likely to extend deeper into negative territory, at an accelerated pace, overcoming a second-to-last hour bounce. On a normal day. But Friday’s stand-alone session was not a normal day.

Obviously low volume for obvious reasons made the afternoon nothing but noise, bouncing back to session highs and no higher. Favorable GMAC news helped. But that doesn’t mean anything bullish came of the day.

Friday’s session was essentially a repeat of Wednesday, albeit occasionally at higher levels. Its upward tilt was still contained within Tuesday’s range. And it’s too late for Tuesday’s range to avoid being contained within Monday’s range. For those keeping score at home, that’s three consecutive sessions contained within Monday’s range, and two within Tuesday’s.

Tuesday’s inside day was tilted down pessimistically, but ineffectual for failing to touch Monday’s low. Wednesday and Friday’s upward tilts also suffered from short-comings – contained within the prior afternoon’s range, and failing to improve the open’s gap up, respectively. Their optimism punished Tuesday’s ineffectual pessimism, and now their own ineffectualness should be similarly punished. That is, assuming Santa and other myths have nothing more to say on the subject.

Indicators and Internals.
3-minute RSI was at its highest oversold Friday afternoon when the morning’s high was being retested. Normally this would require a retest. But being a retest makes that less reliable, not to mention being accompanied by unusually low volume.

Monday’s opportunities.
Dropping under 863’00 would start giving sellers traction to resume the slide that last Monday’s session was trying to resume. There’s still unfinished business below at 859’00, below which there lies plenty of old business still inhibiting a rally. But a favorable reaction to favorable news like GMAC could still spark a gap up above 874’00, which could still spark another detour that initially targets 883’00.[/pay]

[pay]Pattern notes.
Wednesday’s abbreviated session was an inside day. It gapped up and traded almost exclusively in positive territory. The optimism was ineffectual , stopping short of touching Tuesday afternoon’s high (not even its pivotal high). Breaking above resistance at 862’50-865’00 would have triggered a rally, but the resistance held. Ineffectual optimism ultimately resolves down, but not necessarily immediately.

So gapping up 2-3 points at Friday’s open could extend easily to 872’00. And above 874’00 would target 883’00. Any sort of rally would need charitable conditions, because lower objectives remain outstanding. The character of Monday’s last-minute surge required its retracement. Tuesday’s test of Monday’s pivotal low indicates tha the actual low will be broken. Under 859’00 would put into play 849’00, potentially down to 842’00 on the same leg.

Indicators and Internals.
Wednesday’s narrow range and shortened hours didn’t give technicals much reason to push either extreme. Neither did the slow and steady chopping higher. That makes them vulnerable to spiking one way or the other on any sudden price move. And that means quickly becoming overbought or oversold would be likelier to retrace, but only temporarily.

Friday’s opportunities.
This session is injected into the middle of what is for most a 4-1/2 day holiday weekend. Its ability to produce normal opportunities will depend on its volume. And volume isn’t likely to be heavy. Overseas markets are mixed just several hours ahead of S&P’s 6:00am Globex open. I’ll be available for that, but don’t forget that my participation today otherwise ends at mid-morning.[/pay]

[pay]Pattern notes.
Normally price action is uneventful during holiday-shortened weeks. Normally it is not in the midst of an ongoing bear market. Monday’s drop didn’t stray from the norm, but rather defined it. If Tuesday morning’s astounding indifference to eight econ reports was standard during previous Christmas weeks, Tuesday afternoon’s drop is the new standard.

Monday’s low already required a retest due to the character of the bounce out of it. Now Monday’s low requires a retest because Tuesday’s last-hour lows probed Monday’s “pivotal low” (the low prior to the actual low). Christmas Eve’s half-session tends not to be very volatile, let alone trend. We’ll see.

Indicators and Internals.
RSI seemed to diverge positively into Tuesday’s last-minute low. But it was higher compared to a prior low that was not itself oversold. There is no requirement to rally Wednesday.

Wednesday’s opportunities.
If sellers don’t take control early enough, buyers might be sucked into the void. Above 862’50-865’00 would target 872’00-873’00. Three more econ reports are due at 8:30, so Monday’s 852’75 low could be probed before Wednesday’s cash session open. Under 849’00 would put into play 836’75. Any lower would then signal that the retest of last month’s lows was underway.

Reminder: My availability Friday may be limited to only the Globex and cash session opens. Regardless, I will not be monitoring the market that afternoon... Have a great holiday![/pay]