Market Wrap

[pay]Pattern notes.
Monday’s session-long decline stopped 4 points short of its 809’00 target. Its low probed last Monday’s 814’75 opening gap up, ranging a relatively narrow 5 points into the close. It is this relentless selling pressure which makes the decline likely to bleed into Tuesday. And it is this total lack of optimism that will make it difficult for lower lows to gain traction.

An oversold market that tries getting more oversold often snaps back sharply. Few things are as ugly as getting caught short in a squeeze from levels desperately lacking in optimists. One thing is getting caught long when an oversold decline doesn’t stop, as its pace is likely to accelerate.

S&Ps have bounced overnight to nearly 824’00, and then fallen back again. There is room down to 814’00 before expecting further weakness to probe Monday’s lows down to 806’00-807’00. A bounce could target 827’00 up to 839’00. But not recovering from a lower low could put into play 765’00.

Indicators and Internals.
MACD & RSI diverged negatively into Monday’s last-minute retest of its 813’00 low. The 11-point rally so far overnight is already sufficient reward for the setup. But any chance for sellers to extend the decline Tuesday should require gapping down under the levels that generated positive divergences.

Tuesday’s opportunities.
Two econ reports are due Tuesday, but nothing after the open. Monday’s decline was enabled by Bernanke and Paulson’s public appearances. So extending the decline throughout Tuesday would help to confirm that sellers have an objective in mind. Bouncing would otherwise refuel sellers for a much busier calendar Wednesday.[/pay]

[pay]Pattern notes.
Friday’s session repeated Wednesday night and Thursday’s action, trying in vain to probe Wednesday’s highs. The repeated probes eventually chipped away at resistance, breaking higher after 11:30. This would have been very relevant on a normal day with normal timing windows . But Friday’s half-session contained only one timing window, at the open, during which buyers attempted and failed to take control.

That doesn’t necessarily preclude price from gaining further, it just makes further price gains increasingly likely to fail. Friday afternoon’s probe reached 897’00 into the close, and the same trending attempt has room up to 905’00 and 910’50 simply as noise expansion. Any higher would start to signal that the trending might be inflating into a year-end rally, albeit ultimately untenable.

The rally attempt is already vulnerable to peaking. An immediate break back under 885’25 could quickly slide another 20 points to 865’00, then another 15-20 points lower still. And that’s just to correct the upleg from Wednesday morning’s low, hardly a ripple compared to the entire upleg from the prior week’s new low. None of which would matter in the near-term if sellers don’t retake control at Monday’s open.

Indicators and Internals.
There was no particular technical weakness at Friday’s close as S&Ps were probing new relative highs. Modest opening weakness would not be credible for extending down further. The nearby chart shows that technicals at the recent low do not argue that a bottom formed, since divergence was limited and not even a positive divergence.

Monday’s opportunities.
Two econ reports are scheduled for 10:00am. Any initial trending attempt would be vulnerable to reversal. So, whether rallying or pulling back, the news should either reverse or accelerate the initial trending attempt. After two consecutive days of trending up on less liquidity, and a week of gains in a bear market, trading one or two opportunities are likely before dawn.[/pay]

[pay]Pattern notes.
Wednesday’s energizer rally didn’t bleed immediately into Thursday’s Globex-only session. But it did help to recover from a 10-point pullback from Wednesday’s close around 886’00. And it has helped Thursday night’s trading to probe even higher up to 893’50. Yet 886’00 keeps attracting price back to it.

Underlying it all is Wednesday’s close above 880’00 instead of under it, which made higher highs possible. A second consecutive higher close today would help to confirm that momentum remains intact, next targeting 911’00. But a negative close would undermine Wednesday’s signal, and all that the higher high was built on.

The probes have been too narrow to be “new Globex trend extremes” that require a retest intraday. Probes beyond the prior session’s high do tend to be retested, which is not the same as being required. The tendency remains likely unless a prior low is broken first. I would caution that these tendencies could be entirely moot on half-days, during a holiday weekend – the data for comparing similar setups simply doesn’t exist in the size necessary to earn confidence.

All that having been said, the most recent higher high at 893’50 is 90 minutes old and backing down again, currently touching 881’50. That’s 2 ticks above Thursday night’s low, whose break would undermine the tendency to retest the high. That might be the only way sellers can work their way back in to a market they drove lower Tuesday night before it left them beside the road Wednesday morning. Otherwise the attraction back up to overnight highs could resume the rally.

Indicators and Internals.
MACD & RSI diverged negatively into higher and higher highs until sellers finally caught. So far only 1-minute indicators are trying to do the opposite at 881’50, but not yet 3-minute. A bounce is possible here, but probably not yet able to last.

Friday’s opportunities.
Early weakness could catch-on with the same mentality that buyers found Wednesday. But unless 879’00-881’00 is broken as support through a relevant timing window – of which there is only one today (the session closes at 1:00pm) – the balance of the day would more likely range flat to higher.[/pay]

[pay]Pattern notes.
The last relevant price action Tuesday was the failure to close above ESz 858’00-859’00. Despite having traded about 6 points above this threshold only minutes earlier, the close was about 6 points below it.

The Globex session extended down through most of the night before bouncing. A negative divergence ended the bounce with a 15-point drop to lower lows at 840’00. A bounce from here has room up to 845’00 (being tested at this moment) without giving buyers enough traction to avoid another downleg targeting 832’75. This next target is interesting because it is under yesterday’s low. Gapping open under yesterday’s low would reject yesterday afternoon’s rally. And it would signal a session-long decline.

If sellers were going to make a splash before Thanksgiving, they needed to do so by early Tuesday afternoon, or no later than this morning’s open under special circumstances. Sellers did produce lower lows into mid-afternoon Tuesday and prevented a bullish close. Gapping open under 840’00 would give sellers a window to extend the overnight loss. A break maintained under 836’00 would give sellers a day to retrace all of Monday’s gains, perhaps more.

CAVEAT: The foregoing would be much more reliable in a normal market environment. I am impressed by the predictability of behavior overnight (specifics available in the chartroom), but liquidity is going to start evaporating rapidly in several hours. If sellers aren’t clearly influential through the cash session’s first hour, then the balance of the day will be much less likely to honor any other normal influences.

Indicators and Internals.
Divergences at the overnight bounce’s high produced new overnight lows. The 1-minute RSI diverged positively upon approaching the new lows. That hasn’t bled into the 3-minute after 30 minutes of bouncing 5 points, so the low should at least be retested. Unless there is simultaneous divergence there, another downleg would be underway.

Wednesday’s opportunities.
It’s quite an economic calendar planned for today. Three reports are due at 8:30, another at 9:45, two more at 10:00 – and all of them high-profile. If the market wants to fall, then it should be able to find a scapegoat. So easily, that if the reports come and go while S&Ps remain within yesterday’s range, selling could very well be marginalized for the day. Beware of illiquidity as noon approaches.[/pay]

[pay]Pattern notes.
Did Monday’s rally leave something on the table that can motivate its resumption Tuesday? The open’s large surge had made the expected rally capable of reaching ESz 865’00 and 875’00. Only the lower target area was tested, almost 5 points short of the 870’25 target created by afternoon swing measurements. Had the session simply closed there, then the higher target would still be likely.

But Monday’s reaction got carried away and plunged all the way back down to the afternoon breakout’s 838’00 buy signal. S&Ps firmed more than 10 points into the close, which has held so far overnight. So, is the higher target still likely? Is it high enough?

I’ll expect a retest of Monday’s high, so long as Monday’s last-minute drop represents the worst of it through Tuesday’s open. This includes room for a retest the drop’s 837’00 low, but not much time. Preferably the open will already be advancing, but it should at least be recovering from any opening dip. There is potential up to 880’00 if sellers haven’t regained control before or after retesting Monday’s high up to 870’25.

Volume will start to evaporate Wednesday ahead of the Thanksgiving holiday. Buyers might run out of steam but the market could still range up here into Friday. Sellers will need to retake control early Tuesday afternoon if they don’t intend to wait until next week before proving this is only a bear market bounce. That argument would already be won if pullbacks don’t hold 829’50 as support.

Indicators and Internals.
RSI was stuck in overbought territory during the last of Monday afternoon’s rally. While that obviously created a vulnerability, it should have also reflected an underlying strength not easily deterred. It’s no particular overbought reading, but the persistent overbought readings that help to suggest Monday’s high will be retested.

Tuesday’s opportunities.
An dip hasn’t yet happened four hours into the overnight Globex session, so one would lack credibility if it appeared now. So long as 829’50 were not threatened, the rally’s resumption would be the plan. The resumption itself might soon peak, but we’ll deal with that eventuality as it approaches – probably Tuesday afternoon, although the pattern might allow a turn overnight after the close. Retail sales reports come out pre-open, with Consumer Confidence at 10:00. [/pay]