Market Wrap

[pay]Pattern notes.
Friday’s last 15 minutes saved the session from earning clear title to being “ineffectual optimism.” That’s when Thursday afternoon’s highs were finally probed despite two previous attempts, and an entire day spent in positive territory. The closing surge peaked at 937’50, which had been made possible by earlier patterns intraday. But apparently buyers failed to gain traction because of excessive pessimism. That was finally discounted at 908’50 by the reaction to Obama’s speech.

A break of the session range is always suspicious when its sponsors can’t get it done earlier while the opposition has time to fight back. Friday’s late surge is no different. In fact, it’s durability is even more suspect since its peak retraced 61.8% of Thursday’s entire decline. Then there is the following chart:

The two far right red lines (guess whom they voted for) depict the steep drop from Tuesday’s high and the shallow bounce Friday. The two left green lines show the prior week’s rally and last Monday’s shallow dip. The principle is the same: mild dissent within big moves isn’t dissent, at all. Tuesday’s resumption of the prior week’s rally started too optimistically to be maintained. Calmly resuming last week’s decline would give it a better chance to extend down past the outstanding 890’00 target.

Also outstanding is the gap back to recent lows. And that should be within the context of a scary downleg targeting 787’00, perhaps in time for the January Effect to spark the Obama bull market. If Friday’s bounce doesn’t resolve down soon, then optimism will stretch its legs for perhaps one last time before the Obama bear market begins.

Indicators and Internals.
Before Friday’s last 15-minute rally, sellers had been counted out 15 minutes earlier, That’s when technicals diverged positively while the reaction to Obama’s speech hit its 908’50 low. By any measurement, the signal has already been productive, and leaves no unfinished business necessarily attracting price higher.

Friday’s opportunities.
Little by way of economic data awaits Monday’s market. Or on Tuesday’s Veteran’s Day holiday. In fact, the government bond market will close early ahead of the holiday. Be mindful when this popular destination for flights-to-safety is shut down, because stocks can gyrate unusually when the hedge isn’t available. There is almost an entire session before that becomes relevant.

Meanwhile Sunday night’s open has room down to 927’00-928’00 before sellers start to gain traction, and under 924’00 before sellers start to gain it. That would reject Friday’s steep, last-minute trending emerged from what was likely to be a flat range into the close. An alert subscriber reminds me of the prior instance when this happened, and it didn’t go well for the last-minute trending. But I’ll become more bullish if 938’00 maintains a recovery through the open.[/pay]

[pay]Pattern notes.
Thursday’s second-to-last hour corrective bounce was required to resolve in new session lows. New lows were met, fulfilling sellers’ mission. Price firmed to close back above the bounce’s origin, robbing sellers of their traction. At this point the decline is usually retraced back up to its prior target.

An overnight bounce did retest the intraday decline’s prior target at ESz 913’00. The bounce extended up to within 1 point of the decline’s prior prior target at 927’00 and then back down again to 913’00 as support. Buyers have fulfilled their mission, and now they are losing traction.

Turnabout is fair play, and the door has opened to resume the decline. But since the door has been opened, the decline had better step through it. Otherwise, a vacuum will be left, which the market abhors. Buyers would be sucked back in to fill the void, and to drive price higher instead of lower. Probably sharply higher or lower, since the impending weekend tends to leverage the fear of being short or long during two days of illiquidity.
Indicators and Internals.
Oversold 3-minute RSI just accompanied the overnight pullback’s most recent low, so sellers probably aren’t yet finished. But there is no other unfinished technical business attracting price in either direction.

Friday’s opportunities.
There is no requirement to retest overnight highs since they are under yesterday’s highs. But retesting the overnight high anyway would suggest that sellers don’t intend to influence today’s price action.

There is room back up to 917’00-918’00 before buyers start regaining traction. Meanwhile, sellers start gaining traction under 911’00. Back under 908’00 should put 890’00 back into play.

This being a Friday, any trending maintained through the cash session’s open is likely to persist well past the noon hour. This morning’s Employment Situation report news is just one hour away. Econ reports due at 10:00 might try to redirect the Employment report’s initial reaction. [/pay]

[pay]Pattern notes.
It would seem that for investors, “Hope” and “Change” mean “I hope the direction will change.” Some – almost half the country – might be tempted to view Wednesday’s plunge through the lens of political bias. The temptation is understandable since the correlation seems so obvious. But that’s just not how it works. To see the market’s biases more clearly, view the market without your own biases. Let others search the market for their own reflection.

Wednesday’s drop had nothing to do with the elected, and everything to do with the election. The impending event was using up all of the room’s oxygen. Now that it is history, there is no comparable event or combined events to singularly attract and crystallize the market’s attention. After looking up for the past week, the breather allowed a chance to look down, and there was quite a bit of room below.

Monday’s Trading Plan pointed out the Complex Ascending Triangle whose false break target was met and held at Friday’s high. Tuesday’s rally obviously exceeded the target, but not when combined with Wednesday’s immediate reversal. In fact, Wednesday’s close was the lowest of five sessions that include the triangle, itself. A close back above ESz 970’00-975’00 might put buyers back on top, but otherwise the top is in and the decline’s lows can be retested.

Indicators and Internals.
A very late positive divergence before Wednesday’s close wasn’t enough to avoid sharply lower lows a little later. Another divergence at those lower lows didn’t produce very much of a bounce before 3-minute RSI found itself oversold again at midnight to inhibit the next bounce. This technical action undermines buyers’ efforts, similar to Wednesday afternoon’s last consolidation. Another steep downleg may be getting underway if buyers don’t quickly push price higher.

Thursday’s opportunities.
Wednesday’s low stopped 1 point short of touching the 946’00 target. Lower lows at the Globex open reached 943’00. The next lower target is at 940’25, where Thursday’s open would be likely to gap open if buyers don’t gain traction overnight back above 965’00-970’00. Gapping down to or through 940’25 would target 927’00, 913’00 and 890’00. The scarier the drop, the better the chance of it attracting all available sellers so that a bottom can form and a durable rally can be launched.[/pay]

[pay]Pattern notes.
The afternoon dip’s recovery triggered a pattern that was likely to trend up into the close. That’s essentially how the session played out, with a 21-point last-hour rally to new relative highs within 1 tick of ESz 1007’00. There was still time for a 10-point dip to fully recover.

The close was under the morning’s high, signaling that buyers didn’t gain any traction on the afternoon recovery. That doesn’t mean the rally can’t resume without delay, but it must maintain higher highs through Wednesday’s first 45-60 minutes. Failing instead to maintain the open’s probe of new highs would all but seal a top. It should be obvious by 10:15 that momentum had reversed down.

New highs can be avoided. Not easily. The last hour’s 21-point rally would need to be invalidated, by gapping under its 985’50 origin. This would put into play the gap back to Monday’s 970’00 close, for starters. Otherwise, a near-term peak would depend upon early buyers quickly disappearing after probing higher highs in the 1011’00-1012’50 area.

Indicators and Internals.
Both 1-minute and 3-minute MACD & RSI diverged negatively simultaneously as the last-hour’s high was retested. This doesn’t preclude higher prices, but it makes immediate higher prices likely to form a peak. If the first reaction is instead a drop back down to 990’00-991’00, then the rally would likely resume – not just retest Tuesday’s high, but resume in a new upleg.

Wednesday’s opportunities.
A couple of report before the open are followed by another at 10:00. After the overnight reaction and the immediate open, election-related price action should be limited past the open.[/pay]

[pay]Pattern notes.
Monday was the third consecutive session to trade at least partially within last Wednesday’s range. It was also the third consecutive session not to close above last Wednesday’s ESz 971’50 high.

The relatively narrow session doesn’t offer any other new clues, except that it was a relatively narrow session. A trending session might have quite normally emerged sometime Monday. Now the further delay makes trending likely to begin by gapping.

I was surprised at the paralyzing effect of anxiousness on Monday’s price action. Continuing this behavior ahead of this evening’s election results would not be surprising. A gap at Wednesday’s open would be almost unavoidable, but the real fun will be in the chartroom Tuesday overnight.

Indicators and Internals.
Internals diverged negatively Monday when 25% more NYSE up volume than down volume produced 5% fewer advancing issues than decliners. This isn’t a sell signal, but it does reveal deterioration beneath the surface that would undermine a rally attempt, and enhance a sell-off attempt.

Tuesday’s opportunities.
Two weekly retail sales reports are due pre-open, then Factory orders at 10:00. Exit polls leaking out might provide some intraday opportunities. An overnight break under 963’00 might already put the market on defense before having any serious news to process and absorb. Similarly, an opening break above 971’50 would soon prove whether the current trading range has expended too much buying energy just to tread water.[/pay]