Market Wrap

[pay]Pattern notes.
The afternoon’s rally extended 5 points beyond its 914’50 target. An attempt to extend higher didn’t come until after 3:30, timing that is already suspiciously late. It became obviously late when the blip-up blipped-down back into the range. Despite plunging to 901’50, the close recovered up to 912’75.

The morning’s 911’25 high was still being tested at the cash session close. The last ticks were 3-5 points below it, but the last 3-minute bars still printed it. A clean break either way would have helped to predict whether the rally was extending higher. Instead the close is at equilibrium, and Tuesday’s first trending attempt is likely to reverse equally in the opposite direction.

Equilibrium can be broken immediately by gapping beyond either a prior high or prior low, which in this case is essentially 896’00 or 918’50. I’ll probably have doubts about an initial rally attempt or the recovery from an initial drop, since the rally’s 910’50 target held its test through the close. Resuming the rally probably depends upon gapping up enough.

I’m still not convinced the past two sessions served any purpose other than to refuel sellers. A second consecutive breakout close above Monday’s 918’50 high would say otherwise. But the rally’s overly-optimistic origins, its aggressive nature, and its ultimate failure at a very relevant price, all suggest that this round of buyers is done – and that sellers will retake control if a new breed of buyers doesn’t announce its arrival by gapping up.

Indicators and Internals.
MACD & RSI diverged negatively at Monday’s late peak. The steep drop from there was sufficient to fulfill the signal. Then RSI deteriorated further after the cash session’s closing bounce was retraced. This tends to give Monday’s late sellers a lot of credibility. It’s possible they were initiating shorts, and not exiting longs.

Tuesday’s opportunities.
A couple of retail reports before the open are followed by a Home sales indicator at 10:00. This latter report’s timing tends either to accelerate or reverse any initial trending underway. If the two-day rally’s goal was to refuel sellers, then any probes of higher highs should be short-lived, and the morning should be exited in decline. Otherwise the next higher target is in the 933’00 area, whose test would probably include touching 940’00. [/pay]

[pay]Pattern notes.
Friday morning’s low is a valid low, meaning that the rally it produced is legitimate. The pre-open lows were tested down to 817’00 and recovered through 10:15, then again once or twice, trapping a lot of shorts. The rally exceeded expectations when it filled the open’s gap back to 848’00. Then it added nearly 32 points.

The low stopped optimistically short of forming a bottom. required filling the gap back to Monday’s close and probing it, by at least several points down to 807’00-809’00. Instead the low barely touched Tuesday’s lows which had already reflected optimism for failing to fill the same gap.

Gaps can expend more pressure than they create. A weekend’s rapidly approaching illiquidity can magnify the smallest shift between expending or creating energy. It is in this way that hesitation among Friday morning’s sellers was leveraged into a week-ending surge.

A near-term retest of last month’s lows depends greatly upon proving Friday’s rally is not durable. A gap down Monday need not retrace the entire gain to reject it. But it could be only refueling if the open holds 865’25, or even 861’50. And above 876’25-878’50 would keep sending sellers to wherever Friday’s session sent them, perhaps for another several days as the market works its way higher to 895’00 and 910’50.

Indicators and Internals.
MACD & RSI deteriorated throughout Friday’s last 15 minutes while price trudged higher. This setup normally deserves either a retracement under one prior relative low – the nearest is 865’25. If the setup were going to be invalidated instead, it deserves nothing less than a gap up above prior relative highs at 876’25-878’50. Six times more up volume than down volume produced only 2.3 times more advancing issues than decliners, making at least a support test likely.

Monday’s opportunities.
Saturday morning’s news of the next administration’s big, big, big government proposal had no immediate effect at Sunday night’s open. That’s somewhat surprising, even if Friday’s abbreviated selling wasn’t due to leaking the news earlier. Regardless, this move began by absorbing the first hour’s counter-trend move, so that’s a characteristic to monitor for either refueling the rally, or expending it too quickly. [/pay]

[pay]Pattern notes.
The drop resumed Thursday afternoon instead of waiting until Friday’s open. And it fell to 832’00 instead of stopping at 844’50. A lot of selling pressure was expended. The low probed Wednesday’s last relative low of 834’50, so not closing under Wednesday’s low means sellers lost traction.

Sellers could regain control immediately by gapping down Friday under another prior low – like under Wednesday morning’s 826’25 low, for instance. I would give sellers a benefit of the doubt just for gapping under Thursday’s 832’00 low. Otherwise, sellers may have burned a bridge too far, at least for now, and opening above 850’00 would immunize the session from sellers.

An early resumption of Thursday afternoon’s drop that persists through the open would have among its objectives Tuesday’s intraday lows at 817’50. A bounce there would be overly-excessively-optimistic. Filling the gap down to Monday’s 816’00 close and then bouncing would be only overly-optimistic. If buyers don’t regain control Friday, then next week could be overrun by sellers.Indicators and Internals.
3-minute RSI was at a new oversold low on the bar prior to Thursday’s low, so the 16-point bounce into the close is not doomed to failure. But it was an oversold bounce nonetheless, with only 1-minute MACD&RSI diverging positively at the low.

Friday’s opportunities.
Anxiousness ahead of Friday’s Employment Situation report normally inhibits trending on Thursday afternoon. Trending to one side of a range ahead of the news can often be used as a counter-trend indicator. Trending beyond the range can instead frame the reception that the report will get. Unless Friday’s open is gapping up above 850’00 – or if a gap above 850’00 is reversed back under 847’50 – the balance of the session could drift sharply lower into the weekend, and out of it.[/pay]

[pay]Pattern notes.
Yesterday’s late surge triggered its buy signal above 860’00 came after the last half-hour had already started. That can hurt a signal’s credibility, it can undermine the buying that it triggers, and it can make any eventual gain vulnerable. In this case, the 870’25 target was probed by 3-1/2 points that were returned into the cash session close, on the way down to 855’75 overnight. A 20-point rally up to 875’50 probed yesterday’s high, but that was only knocked back down to 863’00.

In short, buyers haven’t stopped, but their timing reveals that these particular buyers are “weak hands.” They expend their buying energy at times when their efforts have no lasting value, and their gains aren’t building a base from which a durable rally could be launched.

That doesn’t make higher highs impossible. In some ways it makes higher highs likely, since sellers don’t yet appear ready to step up their own efforts. Perhaps they’re waiting to fill the gap back to last Friday’s 895’00 close – it’s not required to be filled, and neither is a retest of its 880’00 prior relative low, but one or both is in-play if sellers aren’t obviously back in control from present levels.

Indicators and Internals.
Technicals diverged negatively into overnight highs. That accounts for the 13-point pullback currently underway. It doesn’t necessarily account for it fully, but selling pressure doesn’t seem to have worsened along the way.

Thursday’s opportunities.
The recovery from overnight lows probed yesterday’s high by only a couple of points in a way that could qualify as a retest. So there is no requirement to retest the overnight high, which would make its break that much more meaningful – especially if maintained. But one retest would still be vulnerable to bringing back sellers in a big way.

A retest would be credible here because the overnight pullback’s recovery has now been retraced by 61.8%. Back above 869’75-870’75 would confirm the retest underway, with potential up to 878’25 or 880’00. Under 863’75 would instead target 858’50 where any lower would signal sellers already retaking control.

Jobs data and interest rate announcements are influential this morning. This afternoon should be interesting with the arrival of anxiousness before tomorrow’s Employment Situation report. That tends to paralyze price action, but sometimes it enhances it, and that would not surprise me this afternoon.[/pay]

[pay]Pattern notes.
Two intraday 30 point uplegs, and a last-minute 20-point surge. An amazing feat, or collection of feats. Equally impressive is that the cumulative effort can still be considered “ineffectual optimism.” The optimism began when the open gapped up, and persisted while the entire session was spent in positive territory. But the session peaked upon retesting the prior afternoon’s high – the origin of the Monday’s last downleg.

The last-minute surge actually made it easier for sellers to retake control. Previously, this would have required gapping down almost entirely under the intraday 818’00 lows. The recovery raised this signal to 838’50 to rob buyers of their traction. This alone would not put into play a break to new lows, but a probe of Monday’s lows down to 807’00-809’00 would be viable.

Tuesday’s last-minute surge also fulfilled the 851’00 target. This was originally targeted by the noon hour rally, whose hesitation made the higher 857’00 target as likely. Who knew. Regardless, satisfying the 851’00 target is the same as chipping away at its resistance. If Wednesday’s open isn’t gapping down, then it’s probably on the way to 857’00.

Indicators and Internals.
MACD & RSI diverged negatively as S&Ps tested 851’00 into and out of the Globex open. Only 1-minute RSI diverged positively into its reaction down to 844’50. It’s a good start to could be a choppy session overnight, but not yet clear that sellers will prevail.

Wednesday’s opportunities.
Testing either end of the 838’50-851’00 range won’t assure a break either way, and could just as easily reverse back into the range. But a break beyond either end would be a good start to whichever side of the equation intends to retake control. That control might last only through the morning’s econ reports ending at 10:00. Or that control might persist into the 2:00 Beige Book.[/pay]