Market Wrap

[pay]Pattern notes.
Monday’s low barely had time to probe the 853’30 target before recovering the 856’25 bounce limit that ended sellers’ run. A squeeze took S&Ps up to 869’00 by the cash session’s close, and nearly 4 points higher afterwards.

The very last opportunity for sellers to have lost traction was the 3:30-3:35 window. Recovering the bounce limit any later would have been likely to resolve the session at new lows – or else gap down to new lows Tuesday. Monday’s last bounce limit was recovered one minute later, but that didn’t matter to the recovery that was already ten minutes old.

However, it does matter to the recovery’s durability. The timing of its origin makes it likely to be retested. The amount of recovery stopped at the last downleg’s origin, which is a common bounce peak. But the retraced distance was compressed into so short a time frame that its relatively steep slope reflects excessive optimism. A gap up to higher highs Tuesday would lessen this problem – a flat to lower open might still extend a little higher, but probably not for long before trekking back toward Monday’s low.

If a decline had wanted to appear this week, then it needed to get underway Monday. The question now is whether the decline has already played itself out. There are two recent recent reasons to retrace Monday’s last-minute recovery: its aggressive slope, and the outstanding objective at 849’00 that was barely missed at the low. They should soon be back in-play so long as 872’00 and 875’00 aren’t recovered through Tuesday’s open.

Indicators and Internals.
Monday’s technicals left no required retest outstanding. Internal spreads were lopsided with sellers producing fewer declining issues relative to down volume. But the sizable last-minute recovery might have already rewarded buyers for their relative productivity.

Tuesday’s opportunities.
The holiday-shortened week has forced the usual econ calendar to reveal itself through only a few narrow windows. Tuesday morning finds four items each at 8:30 and at 10:00. Plenty of opportunity for volatility, and for triggering an opening gap. Wednesday’s calendar isn’t much less crowded considering the session’s early close, and that might help to keep things interesting Tuesday afternoon.[/pay]

[pay]Pattern notes.
Thursday night’s initial slide attempted to reject the cash session’s last-minute 20-point surge. And it would have, if not for the automakers’ bailout. Reaction to the news turned a 10-point pullback into a 10-point gain. But this 20-point upleg was retraced almost entirely by noon. Then the overnight lows were probed int the last hour.

Friday’s opening surge finished a 61.8% retracement of the drop from Wednesday’s peak. The drop into Friday’s last hour chipped away at the 880’00 area’s support. A gap under 875’00-877’00 would be likely to extend down to 866’00-869’00 and 849’00.

It should be acknowledged that Friday’s quadruple expiration might have skewed things. The drop from opening highs might have been only expiration-related, and have contrary meaning. Back above 890’00-892’00 would suggest as much, and start to signal momentum reversing up. But this bullish scenario becomes undermined as any recovery is further delayed.

Indicators and Internals.
35% more NYSE up volume than down volume produced 65% more advancing issues than decliners. This relative productivity tends to be rewarded by some sort of bounce the next day, whether at the open or as a recovery from negative territory. This is waived if the next day’s open gaps under session lows. This setup isn’t a primary requirement, and neither is the Friday Factor. It points down during Monday’s opening 15 minutes, because Friday’s opening and closing 15 minutes both pointed down.

Expiration session trending is also a weak setup, but still tends to persist into the following session. So it is interesting that Friday’s price action trended down intraday, and to its lowest levels in its final minutes. Early rallying would be unlikely to extend higher before reversing down to lower lows.

Monday’s opportunities.
A holiday-shortened week might normally make things uneventful. I suspect not. Monday and Tuesday afternoon’s price action might normally become paralyzed from anxiousness ahead of the next mornings’ heavy calendars, but this will be a thinly-traded environment. And despite the session’s early close, even Wednesday morning has potential for volatility since its calendar is so heavy.

Holiday hours: Markets close at 1:00/1:15pm Wednesday afternoon, and re-open 6:00am Friday morning. Previously I said Globex re-opens Thursday night (Friday overseas). Nope, it re-opens Friday morning at 6:00am. I will monitor price action through at least 10:30, but not at all that afternoon.[/pay]

[pay]Pattern notes.
At noon Thursday I was excited to have identified at least 13 points in three moves. Equilibrium was signaled at Wednesday’s close, so little more than ranging was likely, and nothing more than ranging had appeared. Then a pattern identified a 7-point drop to new session lows. A normal equilibrium session would have produced a 20-point reversal back up to new session highs.

This equilibrium session produced an extra 20-point drop. It was retraced by price action into the close. Sellers would have retained control had the close been under 877’50-880’00. But there was room for a bounce up to 890’00 before buyers would even begin to regain control. S&Ps printed 883’00 when the cash session closed, and gained 9 points more before the Globex open.

A gap open under 877’50 or some similar feat would resume Thursday afternoon’s decline. There is no unfinished business above, but plenty below: last Friday’s gap down at 849’00, and that morning’s 828’75 new Globex trend extreme. For starters. If the equilibrium bleeds into Friday’s quadruple expiration, then back above 897’50 could immunize the balance of the session from sellers.
Indicators and Internals.
Three times more NYSE down volume than up volume Thursday produced only one-third more declining issues than advancers. Buyers were more productive than sellers, which tends to be rewarded by some sort of gain the following day, perhaps only briefly. Technicals left no requirements at all, with 3-minute RSI only momentarily leaving its complacency zone during Thursday’s last-minute surge.

Friday’s opportunities.
Expiration sessions aren’t generally volatile. And equilibrium session tend not to trend successfully. If Thursday’s participants could break the mold, Friday’s might also. [/pay]

[pay]Pattern notes.
The market was in striking distance of closing above prior highs Wednesday. This would have fulfilled the least likely of bullish scenarios. Perhaps the attempt was predestined to fail because the overnight pullback had exceeded its 895’00 limit – that was only overnight, so it got a benefit of the doubt. More likely is that the attempt failed because of optimists, who never let an inappropriate timing window pass unmarked by their impatient buying.

Still, the near-term trend has not yet reversed down, and the 100-point range of 815’00-915’00 (+/-) could persist into year-end. If so, the range would probably narrow, while continuing to firm, similar to Tuesday’s price action before the FOMC news.

Wednesday’s last-minute dip finally retested the gap’s open at 902’25, neutralizing an objective. Closing any lower would have allowed holding short into the Globex open. The same for not touching 902’25 but closing under 905’50. Instead it’s possible that Wednesday ended at equilibrium.

Equilibrium makes trending likely to be attempted, and likely to fail. We’ll assume that any trending attempt is doomed to failure and lean towards exiting a position if it meets a target while technicals deteriorate. If a target is exceeded, the equilibrium label will start to lose credibility.

The nearest resistance is 911’00 and support is 893’25. Breaks sustained beyond either would suggest trending is trying to emerge. That doesn’t mean more serious trending would succeed any more so than did Wednesday’s attempts.

Indicators and Internals.
Buyers can’t yet be counted out, especially since more NYSE down volume than up volume Wednesday produced more advancing issues than decliners. The ratio can be excused by the lateness of the afternoon’s drop. But the positive spread between issues flies in the face of a session spent almost exclusively in negative territory.

Thursday’s opportunities.
The econ calendar is heavy, with one report before the open, and two after the open. Friday is quadruple expiration, and price behavior might stray from the expected. In this environment, it matters less what one believes, so long as one does not believe it altogether (apologies to Oscar Wilde). [/pay]

[pay]Pattern notes.
A 10-hour upward sloping channel, measuring no more than 7 points, offered no opportunity to fade or to buy a breakout attempt. That’s optimism. The immediate reactions were up, with pullbacks holding above prior lows. That’s also optimism. An even steeper surge entered an extended consolidation whose lowest point was far above prior highs before breaking higher again. More optimism.

Optimism can be productive, but not without paying a big price eventually. Dipping under prior lows or prior highs before recovering would trap sellers to refuel the rally. Tuesday afternoon’s rally didn’t do that, which means it was the product of impatient buyers being stretched thinly – not exactly leadership.

Obviously, optimism can be self-fulfilling. For awhile. And potentially a while longer in this instance. Tuesday’s close was attacking last week’s highs, reacting well to weighty news, with quadruple expiration just ahead. I don’t think this is the time to stand resolutely against even a slightly higher high.

If Wednesday’s close is higher after backing-and-filling intraday, a year-end rally might have squeezed through the crack in an otherwise already shut window. Simply screaming higher would only stretch buyers more thinly – perhaps all the way up to 933’00 or 940’00, extending the bounce, and running up a bigger bill in the process.

Indicators and Internals.
Spreads were very wide, and very lopsided – 17 times more NYSE up volume than down volume produced 6 times more advancing issues than decliners. Monday’s distributive internals were invalidated by Tuesday’s open gapping up above prior highs. Tuesday’s internals can’t be invalidated. They don’t require a pullback, and only reveal how stretched buyers already are.

Wednesday’s opportunities.
The late consolidation stopped short of closing above 913’25. That would have triggered an interesting short-squeeze opportunity, and above 916’00 would have surged to 922’00. Above 916’00 Wednesday morning would still put into play 922’00. Either of these are still valid resistance overnight, but don’t require being tested. Their tests would be capable of reversing the trend back down, unless their tests come after backing-and-filling first – perhaps to 899’50, 902’00 or 895’00. Any lower starts to give sellers traction for a more substantial drop. [/pay]