Market Wrap

[pay]Pattern notes.
Sellers dominated Wednesday’s open by driving S&Ps down sharply to probe Tuesday’s lows. A rally recovered the entire drop from overnight highs, but the gains were returned back to Tuesday’s lows. Another rally recovered back to overnight highs in time for the close.

Did sellers miss their chance to produce a new downleg targeting ESu 1255’00, 1248’00 and lower? An unchanged close Wednesday would have suggested as much, sucking in buyers to fill the void left by sellers unable to exploit Tuesday’s bearish session. But Instead Wednesday’s late rally filled the void with a short-squeeze that peaked just far enough to avoid buyers gaining traction.

Wednesday’s last upleg bought sellers some time. But they’ll need to be obviously in control at Thursday’s open by rejecting the last upleg. A drop back to its ~1266’00 origin should soon fall another 10-15 points to leave no doubt, and to attract no buyer. Otherwise, gapping above 1275’00 would target 1280’00-1283’00, an inflection point equally vulnerable to rallying sharply as to plummeting.

Indicators and Internals.
MACD & RSI avoided any overbought or oversold reading after the open’s lows. That is part of the reason why I’m not considering Wednesday’s wide range to have been accumulative. Initial overnight readings aren’t as bashful. Internal spreads showed buyers expending more effort than sellers, but for relatively less reward. Unlike most recent sessions volume increased, obligating Thursday’s market to reward Wednesday’s sellers for their relative productivity.

Thursday’s opening setup.
The econ calendar offers several potential curve balls. Jobless Claims before the open is followed by two 10:00 reports – LEI and the Philly Fed survey – timing that tends to reverse or accelerate any initial trending. If the open either rejects Wednesday’s last-minute rally or extends it, the econ reports should catalyze a substantial reaction.[/pay]

[pay]Pattern notes.
Into and out of Tuesday’s last hour, S&Ps bounced wildly off of each attack on session lows around the ESu 1264’00 level. First to within 1 tick of 1268’00 before falling 5 points to a new session low, then more than 1 point above 1268’00 before falling 5 points back to 1264’00. But timing was more relevant than price action, and none of the dips extended down before the 3:30.

Through all of the false starts by sellers, no buy signal triggered. Indeed, no buy parameters ever formed. Even gapping above Tuesday afternoon’s ~1272’00 high would be considered a corrective bounce with potential another 5-6 points higher, but otherwise vulnerable to resuming the decline. Nevertheless, its more likely resumption would be to repeat Tuesday’s gap down, compensating for the obvious selling pressure that wasn’t produced into Wednesday’s close.

S&Ps firmed into the cash session close and the Globex open, so a gap above the afternoon’s high could still be easily reversed. More significant is that the late strength expended buying energy during an irrelevant timing window when it couldn’t build a base capable of launching durable follow-through. And that buying pressure might be sorely missed soon enough.

Indicators and Internals.
The market was lower at Tuesday’s close, although no lower than it was already by noon. Internal spreads were understandably negative, although 3-1/2 times more NYSE down volume than up volume produced less than 3 times more declining issues than advancers. The ratio doesn’t confirm or invalidate the price action, but it is isn’t out of line enough to obligate a bounce. MACD & RSI were similarly non-committal, with RSI not touching overbought or oversold through the cash session. Trending is unlikely to begin otherwise.
Wednesday’s opening setup.
Wednesday’s econ calendar is sparse. There won’t really be any major economic recalibration to keep price action lively Wednesday morning. Instead early trending would be credible for extending through the morning. Similarly, narrow ranging won’t have much reason to break either way. Whether or not an overnight bounce were to attack or test the 1271’00 area, Wednesday’s open remains vulnerable to delivering the obvious selling effort that was threatened Tuesday. Not delivering it would more likely extend the ranging, and less likely recover. [/pay]

[pay]Pattern notes.
Monday’s late probes of new lows each recovered back above bounce limits to signal that sellers were losing traction. But the interim bounces each stopped short of signaling that buyers were gaining traction. If sellers have chipped away successfully at 1275’00 lows, then Tuesday’s open should gap under them and extend lower.

The alternative is that the consolidation at Monday’s lows was actually accumulative. After all, the third lower low was recovered back to the two prior bounce highs. But a recovery back above the bounce highs would have made the difference between optimism and bullishness. Instead the last bounce didn’t extend higher until after the cash session close. The afternoon’s 1280’25 bias-down target was recovered in the process, but not until it didn’t much matter.

I will give buyers a benefit of the doubt if Tuesday’s open is somehow exploiting Monday’s post-close gain – perhaps for a bounce up as high as 1291’00. Otherwise, back under 1277’00-1278’00 would target 1267’00, for starters. And if maintained on a closing basis, the loss would confirm that the interim rally from last Wednesday’s lows was all about option expiration mechanics, that they had been absorbed, and that the decline was resuming.

Indicators and Internals.
NYSE down volume wasn’t quite 5 times more than up volume, but declining issues numbered only 2-1/2 times advancers. Total volume was below its average pace, muting the obligation to reward Monday’s buyers for their relative productivity. While 3-minute MACD & RSI diverged positively at Monday’s last probe of new session lows, the 8-point rally it produced saw 1-minute technicals deteriorate and refuse to confirm. If Monday’s last-minute bounce does extend higher Tuesday, then it would probably be momentary.

Tuesday’s opening setup.
A higher high up to the 1284’00 bias-up signal would likely repeat the template for Sunday night, but for different reasons. The morning’s price action isn’t precluded from trending as it was Monday, but Monday’s last-minute bounce suggests a lot of buying energy was expended. Any higher would of course trigger the bias-up signal, so sellers must let get control as early as possible to expect having it later, too.[/pay]

[pay]Pattern notes.
Much can be learned from even the narrowest ranging session, when that session isn’t unusually influenced. Friday’s session was influenced by monthly expiration. We know this because the open’s volatility wasn’t productive and because there was no productivity through the close. In other words, despite gapping up and following-through, the open’s probe of prior highs was rejected. And intraday ranging held retests of the prior high and prior relevant low.

Take out the extraordinary influence and the session would be considered “ineffectually optimistic.” Regardless, I would be suspicious of any early rally until it recovered above the gap back to last Monday’s ~1305’50 close. It could be probed by 2 points before beginning to assume that buyers were gaining traction. But a close above 1311’00 would be the minimum requirement to confirm.

A drop begun from either of these levels would still have potential for recovering, and for resuming the rally from two-week old lows. That potential would be better used Monday afternoon, or Tuesday, since it is unusual for expiration-day ranges to break immediately. That’s why an early rally would be suspicious. Similarly, although an early dip to 1287’00 could still recover easily, but an afternoon dip would be more credible.

Indicators and Internals.
MACD & RSI nearly flat-lined Friday from the lack of volatility, and won’t be very useful until the second attempt to probe Friday’s range. Internal spreads reflected much more effort by buyers than was rewarded by the ineffectual optimism. That certainly isn’t accumulative, but its relevance is undermined by the expiration-day influences.

Monday’s opening setup.
The question to ask of trending attempted Sunday night and Monday morning is whether it is capable of extending. Probably not, as described above. But I suspect trending will be attempted, nonetheless. I can’t yet rule out filling the gap back to last Monday’s higher close, but I would expect it to push S&Ps back down if tested before any sell-off were attempted.[/pay]

[pay]Pattern notes.
Thursday’s surge was unable to maintain its 6-point probe above yesterday’s ESu 1295’00 high. If the probe was a warning shot across the bow at sellers, then Friday’s open should waste no time extending sharply to higher highs and attack 1306’00-1307’00. By the same token, if the afternoon’s dip was a warning to buyers, then Friday’s open should drop quickly to 1284’00 and lower.

Sellers can be excused for not retaking control during the last hour’s narrow ranging. The timing wasn’t optimal. But buyers can’t be similarly excused. They had had control until the afternoon slide, and had been very productive. They should have produced another rally leg to new session highs, unless the afternoon slide isn’t only a correction, and intends to extend down sharply.

Big trending moves are very difficult to begin during option expiration sessions. The rally could still resume, but it would be suspicious.

Indicators and Internals.
1.75 times more advancing issues than decliners were produced by 2.25 times more up volume than down volume. Total volume continued to decline, so I wonder whether the market wants to fulfill its obligation to reward Thursday’s buyers for their relative producitivity.

Friday’s opening setup.
Several econ reports Friday will try to interfere with expiration. Most notable is Consumer Sentiment 30 minutes after the open at 10:00, timing that tends either to accelerate or else reverse any initial trending.[/pay]