Market Wrap

[pay]Pattern notes.

The problem with frustrating environments – frustration from any source – is that it can affect perception. I never want to expose myself to the market or to you under those circumstances. (A bad automatic Windows update appears to have been the cause of Friday’s back-up machine problem, which was fixed when the system was rolled back to pre-update.)

I would like to think that had the technical difficulty du jour not driven me from all things technological then I would have happily sold the last hour’s drop. A significant warning flag had already appeared 45 minutes earlier when MACD & RSI began diverging negatively on two probes above ESz 900’00. The morning’s 907’00 high was likely to be retested regardless of its resolution. And any new high would have left no unfinished business to attract price higher since 911’00 would serve well on a closing basis.

Technicals deteriorated at Friday’s last-hour high. The last hour’s high was also a probe above Thursday’s high. The 3:20-3:30 window was a successful effort to fall back under those highs. A test of the original decline’s 890’00 target held price tightly until the session’s last several minutes plunged into the last tick. S&Ps lost an additional 11 points down to 860’00 from the cash session close.

That last metric is relevant because it might have signaled a retest underway of Thursday’s “V” bottom. The session’s 868’00 close wasn’t attacked until the cash session close, and it wasn’t broken until afterwards. The difference defines whether momentum has already reversed down. The burden of proof is on sellers, so not extending down at Monday’s open (or Sunday night) could default to being bullish. Otherwise, Thursday’s recovery will have already proved itself a bear market rally, with new lows in-play.

Indicators and Internals.
Friday’s last RSI readings were all substantially oversold. That is often useful for timing a bounce intraday. But ending the day so committed tends to extend in that direction when trading resumes. The Friday Factor was mixed since the open’s first 15 minutes of trading firmed from its gap down, and the last 15 minutes only slid, so no specific resolution is required.

Monday’s opportunities.
A bounce has room up to 878’50 before buyers start gaining traction for at least a test of 892’00. There is room down to 851’00 without yet requiring much more weakness intraday, but any lower would next target Thursday’s 816’75 low, and potentially much deeper.[/pay]

[pay]Pattern notes.
“Pivot Reversal” is a gap up in a downtrend that closes above the morning’s low, interrupted by a new trend low intraday (the inverse is true for an uptrend, and always requires rising volume). The setup is often reliable for 2-3 days of follow-through, but not permanently. There is no single most likely path for retracing back down to the origin’s eventual retest.

Thursday’s price action followed the Pivot Reversal template almost perfectly. Almost because nothing is actually perfect. And also because the last hour’s 55-point surge to nearly ESz 914’00 borrowed heavily from the 2-3 day follow-through. Rather than leave the buying pent-up where it could attract price higher, Thursday’s last hour might have already cashed it in. Regardless of intraday action, closing negative Friday would mean the follow-through is done.

Meanwhile, there is room down to 882’00-886’00 as support no matter the resolution. Its test overnight or early Friday would have the best chance at launching at least a retest of Thursday’s high. Rallying first would make the eventual dip less likely to hold.

Although my long-standing objective was satisfied Thursday by retesting recent lows at 830’00-835’00, my expectation for lower lows has not changed. Despite the overtly optimistic reaction from under 817’00 – or because of its relentlessness – buyers are still too optimistic to have allowed sellers to be flushed out thoroughly. A day or two of closing under prior lows would be able to produce a bottom. Thursday’s “V” bottom low was too far under prior lows to be their retest, so it requires its own retest eventually.

Indicators and Internals.
RSI quickly came off of oversold after Thursday’s close. But I would take with a grain of salt any initial divergence that might be signaled at Friday’s open.

Friday’s opportunities.
The economic calendar finally comes alive with two items at 8:30 and two more at 10:00. This being a Friday, an initial bias in place past these news items will likely remain in place well past the noon hour.[/pay]

[pay]Pattern notes.
Wednesday’s drop couldn’t have ended without yet another 10-point corrective bounce. The last half-hour’s surge from ESz 848’50 to nearly 860’00 started and ended early enough to allow time for its retracement. Most of it was.  The opening gap down had signaled a session-long decline, vulnerable to narrowing most of the distance back to October’s lows, and sellers did not disappoint.

A smallish bounce has room up to 859’00-861’00 before buyers even start gaining traction for another corrective bounce. The possibility cannot be discounted. In this environment of crashing price and interventionist government, it becomes increasingly likely that some “favorable” news might appear suddenly.

Otherwise, the decline’s momentum remains intact. The gap back down to October 27’s low close around 835’00 could be met overnight. Thursday’s open could gap down to within 3 points of it, then extend lower to 827’25. Although 787’00 would make an ideal low (waiting for its rejection to make an ideal bottom), I will be watching any probe of new lows for signs that selling pressure has been depleted. But my premise will be that any bounce is just that, a bounce, on the way to lower lows.

Indicators and Internals.
I’ve repeated often that the goal of this downleg is to shake out sellers before they had a chance to refuel much and replenish their ranks. Wednesday and Thursday’s steep decline was likely to be followed within 2-3 days by a more sizable move. The wide internal spreads reflect just the sort of wholesale, widespread selling that could make an eventual probe of new lows more easily absorbed and reversed by buyers.

Thursday’s opportunities.
The economic calendar has been sparse this week. It’s busier Thursday, but not much. Jobless Claims at 7:30 will be of importance. But at this stage of the decline, price reaction is more important than data. There is a move underway to test October’s lows, whose test would form a very distributive pattern that all but requires probing lower lows. The lower lows would have a distinct opportunity to produce a bottom, but first things first.[/pay]

[pay]Pattern notes.
Is there any more “good” news out there? This market seems very interested in absorbing it, and using the buying it generates to refuel the decline. This week’s version of the cycle started Sunday night. The Globex open reacted favorably to a trifecta of seemingly positive developments, triggering a gap up that extended sharply higher overnight. Sellers at Monday’s open swallowed the gain whole. Having refueled themselves, sellers also swallowed all of Friday’s last-minute surge.

No good news triggered Monday’s last-minute rally that bled into the overnight session. Perhaps it was the good news that Monday’s drop stopped short of breaking under Friday’s low. Regardless, the overnight rally did refuel sellers, producing Tuesday’s gap down under Monday (and Friday’s lows) that continued into the noon hour.

Another favorable news item (BSC/BLK) triggered a 30-point mid-afternoon surge. And the surge refueled sellers, so we know how this story ends – with a 30-point, one-hour drop back to the surge’s origin.

Sellers were refueled somewhat by a last-minute bounce, but a dip into the close expended most of that. The closing dip also made another bounce unlikely. There’s not much room to bounce overnight, but plenty of time to range narrowly, all with the goal of keeping buyers from gaining traction. This leg is still targeting 876’00, and almost any lower would put into play a retest of the 830‘s lows.

Indicators and Internals.
Tuesday’s NYSE down volume was about six times up volume, but it produced only about four times more declining issues than advancers. Buyers were more productive than sellers, which can obligate the following session to reward them, even if only momentarily. But gapping under the prior session’s low would render that reward moot.

Wednesday’s opportunities.
For the decline to resume without refueling sellers again, Wednesday’s open might need to gap under Tuesday’s 885’00 lows. So overnight selling would get a benefit of the doubt for extending down, especially under 890’00. Otherwise, buyers start getting a benefit of the doubt above 902’00-903’00. Econ reports have been absent this week, and they’re still thin on Wednesday.[/pay]

[pay]Pattern notes.
Up was down Monday, as Sunday night’s surge proved to be only a detour on the path to fulfilling expectations shared here Monday. Despite testing ESz 962’50 overnight, Monday’s low came within 2 ticks of Friday’s 905’00 low.

That’s a long way to fall and yet stop 2 ticks short of even touching the prior low, let alone probing it. The 15-point closing bounce’s credibility is undermined for not having originated from any meaningful test. The environment is vulnerable to gapping down under 913’00 or lower to reinstate the decline (not signaled, just vulnerable).

For all of its failures to sustain a rally, Monday’s buying did make some bullish progress, starting with Sunday night:

1) The 962’50 overnight high wasn’t a “new Globex trend extreme” that requires intraday retest, but it did probe the prior two sessions’ high which makes its eventual retest likelier than not.

2) The cash session’s 948’50 opening gap doesn’t require a retest either, but it’s magnetic attraction will try to inhibit selling meanwhile, and attract price up if it’s back in the neighborhood. Sunday night’s 941’00 gap open could also attract price higher.

3) Monday’s low held above Friday’s prior relative lows. This doesn’t help to form a bottom, but it does keep the ball in-play for potentially retesting the two pieces of unfinished business listed above.

The decline’s resumption still has a benefit of the doubt, targeting 890’00, perhaps lower to compensate for the last-minute bounce up to 920’00. But back above 924’00, confirmed above 927’00-928’00 would instead put into play retests of the unfinished business described above.

Indicators and Internals.
MACD & RSI deteriorated into Monday’s last-minute bounce, or at least did not improve. And that was some bounce. It was at least enough of a bounce that technicals should have improved if the bounce were durable. Unless Tuesday’s open were to gap up, I expect the technicals to point down.

Tuesday’s opportunities.
The government bond market is closed Tuesday for Veteran’s Day. No government economic releases, or any others, are scheduled. Much will depend upon overnight price action, which is only intended to refuel sellers unless 924’00 starts to be recovered.[/pay]