Market Wrap

[pay]Pattern notes.
Thursday’s dominos all fell in-line with the bullish focus on moving back to last Friday’s highs. That is, all the way until the noon hour’s end, and the focus on recent highs was replaced by a fear of falling. A series of mid-afternoon dips each stopped short of touching ESz 1210’00 support, dooming the eventual bounce to failure: the failure of probing under 1210’00.

That, too, was met with an otherwise inexplicable buying surge. The 1210’00 area is significant in that it would serve either to limit a one-day corrective bounce, or else propel a retest of last week’s highs. It was exceeded by 15 points intraday, so to close within 1-2 points of 1210’00 is bearish for having flubbed the opportunity to break higher. The actual close was higher, but only thanks to a very last-minute reaction – not exactly a sign of strength.

Unless Friday’s open were to extend Thursday’s last-minute surge, I would expect sellers to take control of the morning’s price action. And the weekend’s illiquidity will start to appear absolutely frozen solid when everyone starts realizing the one-day corrective bounce was just that.

Indicators and Internals.
Technicals avoided oversold territory during the afternoon’s weakness, leaving plenty of room for further deterioration before any bounce might be forced.

Friday’s opening setup.
GDP is due before the open, but Consumer Sentiment might be more influential at 10:00. A gap down at or under 1210’00 would confirm that the last-minute surge was more ill-timed optimism. But this being a Friday, the initial trending will be likely to persist well past the noon hour, so I would not want to be short if Friday’s open were to maintain Thursday’s last-minute surge, let alone extend it higher.[/pay]

[pay]Pattern notes.
Tuesday’s ESz 1280’00 target was met within 1 tick Wednesday. Selling pressure had just been satisfied, RSI was making higher lows, and the cash session close was just minutes away. The combination formed a perfect storm that swept up S&Ps 13 points into the Globex open.

The last-minute recovery prevented a losing day. The cash session’s range was relatively narrow, so the recovery was a relatively narrow success. The success pales further when compared to the overnight range that had rejected the post-close surge from Buffet’s Goldman stake. Move over Warren, here comes the Bush…
S&Ps had pulled back 7-1/2 points to 1186’00 following Bush’s televised address, which helped to spark a 12-point surge up to 1198’00. That’s essentially Wednesday’s cash session highs, where a break would target a retest of Tuesday night’s 1210’00 high. And a break there could trigger a retest of last Friday’s highs. A lot is riding on the overnight price action.

Indicators and Internals.
1-minute RSI is overbought on the surge to 1198’00, making a pullback likely. The 3-min is also overbought, making the pullback likely to recover, if not also extend higher. Nothing requires a pullback’s recovery to become a new upleg.

Thursday’s opening setup.
Jobless Claims and Durable Goods at 8:30, then New Home Sales at 10:00. Hopefully no defaults in between. It is difficult to generate sponsorship for trending in this environment. By the same token, trending in this environment – especially trending contrary to the tenor of the news – is that much more likely to extend. So, rallying on bad news will get a benefit of the doubt, and breaks of support will get tight stops.[/pay]

[pay]Pattern notes.
Tuesday’s last 40 minutes plunged 29 points. The last 2 points came after the close, and followed a bounce that started just before reaching prior lows. Those prior lows had just printed 2 hours earlier. A 2-hour, 60-point round-trip that bounces suddenly from ticks above the prior low instead of probing it? That’s optimism The post-close lower low? That’s noise.

The Globex open firmed several points – also noise. Then things got interesting when Goldman Sachs announced a $5 billion private placement with Berkshire Hathaway. S&Ps spiked up almost 10 points and surged another 10 points from there. Also noise? Overly-optimistic?

Recovery? The last hour’s rally tested ESz 1210’00 where I noted its recovery would mean something underway more substantial than a corrective bounce. Its probing held and produced a drop back to session lows. Despite S&Ps being 25 points lower, I noted that the downtrending could be reversed by gapping above 1210’00. That’s where the Goldman news peaked, so the recovery question can’t yet be answered “yes.” Until then, that’s the answer to the noise and overly-optimistic questions.

The likelihood for gapping above 1210’00 would become likelier above 1212’50. That’s not so close since S&Ps have retraced 9 points to 1198’00. Just being under 1199’50 would make the gap back to Tuesday’s 1187’00 likely to be filled – it will be filled eventually regardless, but doing so now would reinstate Tuesday afternoon’s decline, and waiting would have a chance to retest Friday’s high.

Indicators and Internals.
RSI made higher lows when S&Ps probed new session lows after Tuesday’s close. MACD didn’t join in, so the signals weren’t complete and any bounce they produced is questionable.

Wednesday’s opening setup.
Existing Home Sales is due at 10:00, timing that still tends either to accelerate or reverse any initial trending already underway. If the news – or any news – is greeted from under Tuesday’s lows then I would expect the reaction to extend the decline, or else doom a positive knee-jerk reaction to failure. A return to last week’s lows within the next week would be entirely too soon for a bottom to form, regardless of whether it produced a brief bounce.[/pay]

[pay]Pattern notes.
Monday’s session-long decline finished about halfway between Thursday afternoon’s low and Friday’s opening high. Having fallen 28 points to the ESz 1222’00 target, one more point lower to 1221’00 put into play the next lower target at 1200’00.

Despite bouncing into the close, the drop remains in-play so long as bounces don’t recover above 1216’00-1221’00. A gap above 1216’00-1221’00 would get a benefit of the doubt for extending higher. Under 1195’00-1200’00 would instead simply point much lower.

Indicators and Internals.
MACD & RSI had just started to improve into Monday afternoon’s low. The non-confirmation wasn’t a positive divergence, so no more than  a bounce into the close was likely. And having bounce off a double bottom, the pattern is that much likelier to at least probe the lows.

Tuesday’s opening setup.
The econ calendar is interesting, but I suspect a lot will played out overnight. Join me in the chartroom.[/pay]

[pay]Pattern notes.
Gold had its worst day Thursday since 1980. Just to put that into perspective, Gold’s best day since 1980 was one day earlier on Wednesday. A steep move doesn’t prove the environment is more conducive to that direction. It does prove the environment is conducive to steep moves. By the same token, the gargantuan rally from Thursday’s low is less evidence of a trend reversal, and more evidential of a volatile environment.

Similarly, gaps prove the environment is conducive to gapping. Gapping down under ESz 1228’00-1230’50 would target 1189’00-1194’00. Gapping up above 1263’00 would target infinity-gazillion. By 11:00am. Maybe not quite that high or fast. But Monday’s open probably shouldn’t gain more than 20 points without some more heavy-handed intervention, such as outlawing all shorting, or all selling of any kind. Thursday’s 1136’25-1137’50 “V” bottom requires an intraday retest, Friday’s 1268’00-1271’00 open is likelier than not to be retested above, and in this environment both could happen on the same day.

Did we witness the birth of a new bull market Friday? I’m not yet sure we saw the bear market’s death. Credible cases can be made for either, but a better case can be made for being agnostic. During the next several days the pursuit of a longer-term opinion could be a counter-productive distraction for traders.

Indicators and Internals.
Intraday trending on an expiration session tends to be repeated by the subsequent session after the weekend. Friday’s Quadruple Witch expiration session traded down from its opening tick and never retested the open’s high. The Friday Factor identifies another tendency, for the next session’s open to match Friday’s first and last 15 minutes of trending. To the extent that this indicator points in either direction, it also points down.

Monday’s opening setup.
The week’s econ reports don’t start coming until Tuesday, although ongoing intervention largely undermines the relevance of lagging data. The State Street Investor Confidence Index will be interesting Tuesday for seeing whether there is any – both investor confidence, and State Street. Bias Parameters haven’t regained their relevance yet, but I continue to monitor price action and timing windows for their return to normality. Join me in the charting room for Sunday night’s open. [/pay]