Market Wrap

[pay]Pattern notes.
“Is it safe, yet?” The movie quote finds its way occasionally into market lexicon, but rarely more appropriately than now. Price action is making an argument that the end is near(in a good way, albeit not quite yet). And now there is an overnight limit down, opening spike down, followed by a session-long rally – despite the weekend’s impending illiquidity. Who’d a thunk it?

Sellers aren’t exploiting the environment to gain new traction. The nearby chart depicts Friday’s close being above Thursday’s low, as was Thursday’s close. Actually, Thursday’s close was positive, so obviously that’s not a determining factor for timing. Nevertheless, it does raise the standard for any new selling pressure that intends not to be brief.

Of course, the argument for a bottom would be much more convincing had Friday’s low actually probed prior lows before recovering. S&P futures large contract did, but only momentarily. Optimism at the low isn’t as damaging as at the high, but it does help to refuel the decline.

The net effect is the Complex Descending Triangle depicted nearby. It doesn’t save the market from printing new lows. But it does help to limit the new lows. Typically that is a 61.8% or 161.8% extension of the Triangle’s middle swing, essentially ESz 789’00 or 667’00. Friday’s close was at 866’00. Any delay in extending the decline would help to refuel sellers.

Indicators and Internals.
The 1-minute RSI reading at Friday’s last-minute lower low was not also lower. But that’s not much of an improvement considering it was also oversold. Intraday that might have elicited a bounce. Unfortunately, the weekend can soften the oversold effect.

Monday’s opportunities.
No econ reports are due. The FOMC meeting begins, but its decision on interest rates won’t come until Wednesday afternoon. Overnight price action will be interesting, and potentially predictive of the day’s direction.[/pay]

*Be sure to read the Programming Note at the bottom.

[pay]Pattern notes.
Wednesday’s “V” bottom at ESz 872’50 required a retest, despite the 40-point recovery into the Globex open. And despite extending that to 50 points overnight, S&Ps were within 10 points of Wednesday’s low before Thursday’s open. Two bounces later – one of which pierced the 922’50 overnight high – a third sell-off was underway.

The third time was a charm, but not so charming. This leg fell to 856’00, fulfilling two outstanding retests, both Wednesday’s low and last Thursday’s. There’s a third outstanding retest, the two-week old actual low at 837’00. That would have been charming, and the pattern could have extended down another 50-60 point after bouncing to 880’00. The bounce limit held its test, its first test, but the next 50-60 points traded up instead.

Surely two near-tests of the low should qualify as a single complete test, yes? No. There was no reason for last Thursday’s low to retrace so much of its large interim bounce, not unless the low’s eventual break is likely. And there was no reason for this Thursday’s low to come even closer without the same end in mind. Apparently the support is so substantial that it requires some substantial chipping away.

The overall pattern doesn’t change, not meaningfully. It is still a triangle, pointing to new lows temporarily. The new lows are meaningful, too, but there’s still a couple of templates that allow a recovery from new lows to form a tremendous rally. There’s a third template that doesn’t. It would be invoked by Thursday’s rally extending through Friday, refueling sellers and optimism, instead of resuming the decline without delay.

Indicators and Internals.
NYSE down volume was 22% greater than up volume, but it produced 66% more declining issues than advancers. The negative spreads alone are a negative divergence from the session’s positive close. The lopsided ratio between them reflects sellers being much more productive than buyers, and more likely to be rewarded Friday. Last-minute negative divergence in the 1-minute MACD & RSI already warns of that, as well.

Friday’s opportunities.
This being a Friday, the morning’s bias is likely to persist well past the noon hour. The only econ report is Existing Home Sales due at 10:00. Gapping under 900’00 would be more likely to extend down to the 880’00 area. A runaway rally isn’t likely without gapping up above Thursday’s 923’00 area highs.

*PROGRAMMING NOTE: I will not update the blog Friday afternoon. I will be in the charting room until noon only.[/pay]

[pay]Pattern notes.
Wednesday’s low at ESz 872’50 printed with 20 minutes left in the session. Buyers made good use of those remaining 20 minutes, rallying back to 900’00. Then to 907’50 minutes later. And eventually up to 912’00 so far overnight.

If bulls truly want to form a bottom, then they should leave the 40-point rallies for another day. Another day when the effort can exploit depleted sellers, instead of refueling them. Another day that isn’t much further away, if the 40-point rallies can wait. Bouncing from within 7 points of a prior low, after falling 120 points from the interim high, isn’t a good way to leverage that optimism for further gains. And a new session low in the last half-hour of a session-long decline is not the decline’s bottom.

The shape of Wednesday’s “V” bottom makes it likely to be retested. At least. And the bounce is welcome to end anytime, especially since it is now testing 911’00, which was an important target of the decline’s original drop. That would be better for bulls, a decline down to prior lows under 837’00 that extends the pessimism to an unsustainable extreme, instead of letting sellers refuel.

Indicators and Internals.
3-minute RSI printed its session low simultaneously with price. The “V” bottom makes its retest likely, but the oversold 3-minute RSI requires it.

Thursday’s opportunities.
Jobless Claims due before the open is pretty much the day’s econ calendar. Meanwhile, the earnings calendar continues to draw more attention. So long as the 911’00 area isn’t recovered, especially through any relevant timing window, the retest of Wednesday’s low will remain likely. And so will its break.[/pay]

[pay]Pattern notes.
In the charting room Tuesday, I attributed a quote incorrectly to Doyle Brunson, that actually came from Tom McEvoy describing poker as “Hours of boredom followed by moments of sheer terror.” And that’s when it is played properly.

Tuesday’s price action provoked me to recall the poker quote. The open’s gap down, the late-morning 32-point drop whose afternoon recovery was retraced entirely again. Waiting for each of those setups was in turns either frustrating or dull. But when buyers or sellers caught, they caught, and price moved.

But even after all of its unique twists and turns, Tuesday’s session was more similar to Monday than different. Neither filled its opening gap, nor did they extend beyond the prior session’s range despite trading exclusively in positive or negative territory. Two consecutive inside days is no more revealing than one.

Sellers still seem to have the advantage, not of day-to-day or intraday control, but for preventing a rally for 2-3 days since last Thursday’s low. Friday’s session had extended sharply higher intraday and yet its afternoon reversed down to close negative. That afternoon’s loss was recovered Monday, and then largely reversed again Tuesday.

That said, no advantage is meaningful if never exploited. While S&Ps consolidates atop a bounce without retracing it, the burden of proof is on sellers. Their clock is ticking down, and opening only slightly weaker Wednesday won’t buy them any more time. Significant selling pressure should appear without delay, or else be delayed until S&Ps rally another hundred points.

Indicators and Internals.
Internal spreads were much less lopsided after Tuesday’s choppiness than after Monday’s session-long rally. Sellers aren’t nearly as expended now as buyers were before Tuesday’s open. Internals were lopsided enough to suggest a momentary bounce was due, but that might have been satisfied overnight by the initial earnings reaction.

Wednesday’s opportunities.
The econ calendar is very much muted for the balance of the week. Thursday’s Jobless Claims and Friday’s home sales aren’t going to compete well against earnings news. Which might be bad news for stocks, because even the decent earnings news items haven’t had much favorable impact. Every bounce should be considered for its vulnerability to failing, and to producing a gap down well under ESz 950’00 that extends down sharply through the day.[/pay]

[pay]Pattern notes.
Friday’s gap up extended sharply higher to ESz 970’00, then back down to 943’00. That’s a lot of selling pressure, but it never reached negative territory. The balance of the session trended up, with the afternoon’s mid-section repeatedly probing away at tests of the morning’s 970’00 high. The probing was ineffectual until the last half-hour, when the 3:20-3:30 timing window had just shut on sellers being able to retake control.

Inappropriately timed dips left a void that sucked in buyers for a surge up to 992’00. The 59-point gain probed Friday’s high, but only thanks to a short-squeeze after the cash session close. Monday’s cash session was an inside day contained within Friday’s range – actually, within Friday afternoon’s range.

Trending on inside days tends to be in the wrong direction. Monday’s rally stayed alive not by the strength of its buyers, but by the weaknesses of its sellers. The open’s gap up, the mid-morning plunge that remained in positive territory, the otherwise session-long uptrend, five distinct intraday uplegs, and a post-close short-squeeze – all optimism. Ineffectual at first, and excessive at last. The only thing it produced on the chart not already there one day earlier was not even produced until after the close.

If sellers don’t immediately retake control at Tuesday’s open, then Monday’s rally could extend sharply higher before finally dropping back to recent lows. But extending Monday’s rally would neutralize unfinished business above. And that magnetic attraction above would be helpful to start a real bull market after retesting 837’00 below. So it is very important for the purpose of creating a durable bottom that Monday’s rally not be durable at all.

Indicators and Internals.
3-minute RSI was overbought at Monday’s second-to-last minute high, after the cash session close. A 4-point dip recovered to a very last-minute higher high where RSI was lower. Still overbought, but a lower overbought. Meanwhile, 7 times more NYSE up volume than down volume produced 5 times more advancing issues than decliners, so it cannot be said that the market is running short of sellers.

Tuesday’s opportunities.
Two retail sales metrics are due before Tuesday’s open, and Investor Confidence afterwards. I don’t think any of these can derail any initial trending underway, whether that is extending Monday’s rally or revering it. Friday’s close is not an anomaly, and the attraction back to  it is the lens through which I’ll view any selling effort Tuesday. [/pay]