Market Wrap

Friday’s gap up and probe of fresh highs was rejected. Not immediately, and not without actually trending up to fulfill the morning’s 2730.00 bias-up target up to 2732.50. But the afternoon bias environment dipped 2-4 points into negative territory and contained the session low at 2716.75.

Fulfilling the bias-up target before being fully retraced means that much more buying pressure was satisfied first, and that no “unfinished business above” was left outstanding. So, the question is whether only briefly probing negative territory is an appropriate consequence. If not, then reacting down further is likely — whether aggressively, or simply backing-and-filling.

And that’s assuming the rally intends to extend. Dipping further could be the beginning of the trend reversing down. Avoiding any dip to immediately extend higher could be another version of Friday morning’s temporary rally, but with a more permanent reversal down.

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Thursday and Wednesday’s sessions differed from each other in 1-2 relevant ways. Wednesday had been greeted by an overnight rally that stalled through the morning, and Thursday had threatened not to extend overnight highs until the open rallied. Wednesday’s rally peaked during the afternoon bias environment, while Thursday’s peak developed as the bias environment was entered.

But their intraday rallies were nearly identical. Both began by gapping up, then trended up — sharply, almost directly to their objectives, where the balance of each session ranged sideways.

The similarity is relevant because it suggests that Friday will develop differently. Most of the intraday characteristics, if not all of them. So, this doesn’t tell us how Friday’s pattern will develop, but how it probably won’t. For example, gapping up again would likely fail. Gapping down could recover, but probably not into another substantial rally.

Meanwhile, Friday is being greeted with no “unfinished business above” (again), and a lot of room for backing-and-filling below. Neither of which is necessarily bearish, but keeps alive volatility into the weekend.

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A retest of Monday’s highs up to 2684.25 was never off the table. Not even after Tuesday’s session of chipping away at support around 2660.00. Those dips had recovered to reflect accumulation, but never recovered high enough to signal that accumulation was getting any more aggressive.

Already rallying overnight and fulfilling potential to 2684.25 could have been overly-optimistic and reversed back down intraday Wednesday. But the morning’s wide directionless chop resolved that problem. Its dip was recovered, this time high enough to signal that the rally was resuming.

Wednesday morning’s chop resolved substantially, as was expected from its measurements and frequency. It fulfilled the next higher objective at 2696.75 upon entering the afternoon bias environment. And that was the close, after the balance of the session ranged around it between 2691.00-2700.00.

The rally gained no traction by exiting the bias environment in the noon hour’s range and entering the final hour in the bias environment range. A durable trend Thursday morning must begin by gapping open. Trending without gapping open would be vulnerable to reversing back through unchanged.

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Tuesday afternoon’s 2662.00 bias-down signal didn’t trigger, but it broke sharply lower when the bias environment began lapsing. Its 2655.00 bias-down target was probed by 3 points. More important, the fresh lows joined the morning and noon hour’s fresh lows to extend Monday afternoon’s slide. Its trend reversal is now confirmed, regardless of closing nearly unchanged on the day.

Meanwhile, the market has adopted a new and an interesting characteristic — defensive posturing. Based on Tuesday morning’s price action, we anticipated the President’s afternoon remarks would be greeted from fresh session lows. Later, Iran’s response was preceded by a plunge to more fresh session lows. Their recoveries are masking the 180-degree change from greeting news overly-optimistically, and then recovering from reactions down.

The market is at once learning both to posture defensively by dipping, and also to prepare for buying the dip. This eventually encounters a problem, as dips become too shallow and bounces are sponsored by weak hands. It becomes a vicious circle that ends with a bigger downleg, or resets with bigger corrective bounce.

Perhaps Monday afternoon’s 19-point slide was the beginning of defensive posturing. Tuesday included a couple of 16-point downlegs ahead of news. Gapping up Wednesday above Tuesday’s 2674.00 high could retest Monday’s highs up to 2684.25 and still resolve down into the weekend. There are two near-term paths down, one extending down through Thursday morning, and the other bouncing first before launching a deeper downleg into the weekend. Extending down without delay Wednesday could find a near-term low and a temporary bounce Thursday morning.

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With room for noise above 2674.00 up to 2684.25, the only question Monday’s open need answer was whether 2674.00 was being recovered. Testing it overnight had all but required recovering it through the open to avoid reversing down. The open did recover it up to 2679.25, and the bias timing window held on to renew the bias-up signal.

Reactions down were absorbed by higher and higher lows. But the open’s high wasn’t probed until the afternoon bias environment started lapsing. And it was probed by a sudden surge. Inflection at a window’s exit carries extra degrees of reliability if confirmed, and extra degrees of consequence if rejected.

Monday afternoon’s late inflection was rejected. Its consequence was fresh session lows. All prior lows were probed within 45 minutes. The reversal extended down to 2662.50, taking RSIs oversold and filling the gap back down to Friday’s futures close. The obligatory reaction eventually firmed up to 2672.00 through the close.

Even if we knew with 100% certainty that the trend were now reversing down, that wouldn’t prevent first retesting Monday’s high up to 2684.25. Anything more substantial would need a new setup to form, and to trigger.

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