Market Wrap

[pay]Pattern notes.
Really after awhile it just feels like kicking the market when it is down. Another lower low, and another template for extending further. Every day either leaves unfinished business below to attract prices down, or confirms the decline remains intact. But this time it’s much more serious.

The nearby chart compares S&P cash for four weeks into Thursday’s low. The chart below it depicts the same time frame leading to 1987’s Black Monday. This is my crash template, formed from 8 of 10 declining sessions. That string of success stretches the rubber band thinly. Either it snaps back from being stretched as far as possible, or it simply snaps from being stretched further.

The last day in this template is today, Friday, which doesn’t appear in the 2008 chart. And not depicted in the 1987 chart is Black Monday. The current decline doesn’t have to stay on this path Friday. If it does, then it need not stay on this path Monday. But it would be quite a risk to hold anything long over the weekend.

Indicators and Internals.
A 17-point drop from 891’00 attacked overnight lows while 3-minute RSI diverged positively. Presently the drop has recovered, leaving no outstanding RSI signals.

Friday’s opportunities.
Thursday’s last blog post warned that a break under 955’00 would target 911’00 or even 876’00. The first target defined Thursday’s low, and now the second target is defining overnight lows. It was met well before midnight, and a 20-point bounce has been retraced entirely back to the target, which is holding again. If Friday’s open is under this low, then a session-long slide would be likely.[/pay]

[pay]Pattern notes.
The mid-afternoon consolidation had every opportunity to break higher. The range was testing the morning’s high, and the morning’s high wasn’t offering much resistance of its own. But apparently the morning’s high was the morning’s high because of resistance offered there by something else.

Regardless, the pattern broke lower instead of higher, back towards the cash session lows. If the market wants to bottom soon for a more significant corrective bounce, then this is a good start. Thursday’s open would be a heartbeat lower, and its immediate recovery could quickly recover above prior lows before buyers lose control.

The low’s retest continues to be likely at ESz 965’00 (not idea) and 955’00. And there continues to be risk in the low’s retest – a test looks very similar to a new downleg, and testing prior lows is only half of the story – the rest of the story is that an appropriately-timed recovery would then be needed to avoid falling into the abyss.

Indicators and Internals.
RSI looked ugly at Wednesday’s close. It started looking better after the Globex open when S&Ps continued dropping. Already the contract has lost another 9 points, which is a start, but it’s not done.

Thursday’s opportunities.
A successful test of Wednesday’s pre-open low could be attempted more easily during the Jewish holiday today (Yom Kippur). Lower liquidity makes trending more difficult. That didn’t seem to matter last Monday on Rosh Hashana when the Dow closed down 777 points, and it might not matter today (or it could have the reverse effect). Jobless Claims is due pre-open.[/pay]

[pay]Pattern notes.
What a day. It started at ESz 1069’00-1070’00 whose recovery would have stretched Monday’s short-squeeze 20 points higher. It ended at 1000’00 following a 90-minute, 43-point slide into the close. That’s a new low, both intraday and on a closing basis. And it’s the second consecutive day to range entirely under the prior consolidation’s lows.

That second consecutive thing is not just a random observation – it is confirmation of a trend underway. Monday’s second consecutive new low close was a weaker confirmation. Almost unimaginable before now, that S&Ps could be 160 points under three-day old prior highs, and still be confirming a trend in-play.

You’ll read or hear me speak of possible bottoming setups this week, but please keep that in this perspective: A bottom would require ignoring or overwhelming not just one second consecutive thingee, but two consecutive second consecutive thingees. A corrective bounce can be very productive when the prior week peaked 175 points higher. But I’ll expect it to fail, and to fall back down to wherever it originated.

There wasn’t any particularly onerous development along the way. And, yet, down she goes. Whenever the market is trending away from the direction that the news suggests it should or could, the news isn’t necessarily wrong. But the market is always right.

Indicators and Internals.
Improvement in 1-minute and 3-minute RSI at Tuesday’s last-minute low already produced a 10-point bounce after the cash session close. And that has already resolved in a lower low at ESz 998’00 before 8:00pm. Presently there’s a 10-point bounce attacking 1008’00. Only the 1-minute technicals have deteriorated, but the bounce should fail anyway because RSI was oversold at the lower low.

Wednesday’s opportunities.
The round-number-itis of SPX 1000 isn’t as influential as Dow 10,000 because the index isn’t as popular. Tuesday’s patterns that identified the 1000’00 target also included 995’00. I’ll want to see its test, and the oversold RSI neutralized, before consider whether this downleg is pausing again. Otherwise, a gap up would need to recover 1045’00 before being likely to extend higher.[/pay]

[pay]Pattern notes.
Yesterday’s Trading Plan opened by questioning whether Friday’s drop to new lows was a bottom. The questions is equally appropriate today, but the answer hasn’t really changed – no.

A gap up back above prior lows – back above all of the prior lows that essentially all of yesterday’s price action traded under – would reverse the answer to yes. The gap up need not be today, and probably won’t be since S&Ps are currently 37 points too low. But it can’t be more than 2-3 days past Monday’s plunge that created the prior lows.

Monday afternoon’s short-squeeze might still extend further as a corrective bounce, which would target ESz 1091’00. And noise around the target could fluctuate intraday up to 1110’00. That’s not currently in-play, and its possibility would shrink considerably if 1049’00 gives way as support through any relevant timing window.

Further, the inverted Head & Shoulders at Monday’s bottom requires a retest. The oversold 3-minute RSI at the pattern’s low requires it, too. And although the bottom turned almost perfectly on the intraday decline’s last calculable target of 1009’25, the bigger picture makes a case for 966’00 and 911’00.

Indicators and Internals.
Monday’s internals were of course heavily negative. But the ratios weren’t terribly lopsided to sellers. This suggests that despite the size of yesterday’s decline, sellers have more ammunition available to them.

Tuesday’s opportunities.
This morning’s action will be more challenging than recent days. Yesterday afternoon’s short-squeeze is still being absorbed. That process will butt into anxiousness ahead of this afternoon’s FOMC minutes at 2:00. Trending that isn’t underway early might not appear until the FOMC news. Exits should be planned accordingly.[/pay]

[pay]Pattern notes.
Is it, or isn’t it? Last week’s drop was everything we could have wished for a durable bottom to form. Push pessimists into selling, bounce soon enough to leave unfinished business below, peak soon enough to keep pessimism alive, retest and neutralize the unfinished business. So, is this a bottom, or not?

Not. This might still prove to be a bottom in the making, but the decline isn’t likely to stop on the proverbial dime. In this case, that is the new low at ESz 1102’50, which didn’t elicit much reaction into the close. Declines are unlikely to end on Fridays, let alone Friday afternoons. Let alone the week’s last-half hour of trading. The same goes for the origin of new uplegs.

We’ll know shortly whether Sunday night’s open gaps up. There’s a danger zone of messy resistance spanning 1112’50-1114’50 and then 1117’00-1120’00. Gapping above either or both areas would recover last week’s “higher prior lows” and allow a corrective bounce targeting 1133’00-1136’00 (this would neutralize Friday’s opening gap up at 1134’25 that wants to be retested). Of course, gapping up would be excessively optimistic, leaving unfinished business below – the gap back to Friday’s close.

Just firming into either area would be messier and more difficult to exceed, or to maintain, probably because lackluster strength isn’t enough at this stage of the pattern. What a great opportunity that would be to reverse down to new lows, then recover to close positive. That could be a bottom. That had better be a bottom.

With or without initially bouncing, the decline’s resumption would be signaled under 1104’00. Its test could first produce a bounce that fills the gap back up to Friday’s close. But its break would put into play 1095’00 and 1076’00. Frankly, there is a template in which Monday’s open gaps down to the lower of these targets. In that case, the downleg then underway could make last week’s drop look rather puny in comparison. And the size wouldn’t be the scary part.

Indicators and Internals.
Not much here to discuss. Signals have proved valid intraday, not just Friday but all last week. This means the decline hasn’t changed the rules we focus on, while it breaks the mainstream rules everyone else is watching.

Monday’s opportunities.
No econ reports are due, not that the market would find very relevant any snapshot that was taken before the last week. Tuesday afternoon’s FOMC minutes will be interesting – this week’s event might confuse or segment market participants, and that can only enhance the volatility. [/pay]