Market Wrap

[pay]Pattern notes.
Wednesday’s last-minute bounce ended the day while still in the process of testing Tuesday’s last relative low of ESu 1285’25. Its recovery would have proved the afternoon’s rally had originated during a bias-up environment, allowing the rally’s uninhibited resumption Thursday. Failing to recover 1285’25 would have required the last-hour’s drop to complete its retracement back to the rally’s 1278’50 origin.

So it’s kind of important, since one points up, and the other points down.

Two-thirds of Wednesday afternoon’s 20-point rally was retraced down to ESu 1281’00 during the last hour, and the last-minute bounce retraced one of those thirds. Combined with ending the day at 1285’25 instead of above or below it, Thursday’s session remains vulnerable to the same choppiness that contained Wednesday’s price action.

Wednesday’s session narrowly avoided the “ineffectual pessimism” label. Sustained trending is unlikely before Thursday afternoon, but not for lack of trying. Ineffectual or not, ending the day without yet trending would only be bearish.

Indicators and Internals.
Despite NYSE down volume exceeding up volume by more than 50%, declining issues outnumbered advancers by only 20%. This tends to obligate the following session to reward buyers for their relative productivity. That’s one reason not to expect an immediate decline, or to expect an immediate decline to be recovered.
Thursday’s opening setup.
Jobless Claims and CPI start the day. Any venturing away from the 1285’00 area will be considered likely to return to it, and possibly through it by an equal distance. At least, that will be the general assumption through the noon hour. Either the open or close should lie beyond Wednesday’s range. At this stage of the pattern, Thursday morning is too soon for trending but perfect practice for afternoon trending.[/pay]

[pay]Pattern notes.
Monday morning’s rally was built on sand because it originated during a No-bias environment. That required retracing it back to its ESu 1296’00 origin. Two dips stopped optimistically short at 1298’00 Monday afternoon and again overnight, making a deeper probe likely. It took awhile, but S&Ps eventually reached 1285’25 then bounced nearly 7 points into the close.

Tuesday’s low held a critical test that would have pointed sharply lower without delay had 1287’00 not been recovered. The recovery stopped short of signaling that sellers had lost traction. They’ll start losing it if they don’t start using it Wednesday morning.

Sellers’ first reward would be an air pocket down to the 1277’00 area, then another 10 points lower, and last Monday’s close under 1250’00. There is room for an interim bounce up to the 1297’00 area without buyers gaining traction in their place. Above 1298’00 or so could retest Monday’s highs up to 1311’00-1313’00.

Indicators and Internals.
Sellers worked harder than buyers Tuesday and were rewarded less, which tends to obligate the following session to reward buyers for their relative productivity. But Tuesday’s volume slowed its recent pace, which tends to soften that obligation.

Wednesday’s opening setup.
The close back at the past two months’ prior highs is threatening to invalidate Monday’s higher high officially – not just in theory as the morning’s ill-timed breakout did. It’s a critical point in the chart, so any delay in reversing the breakout attempt is going to help the breakout to recover and extend higher. Conversely, the earlier taht sellers can gain control, the more likely they will control the entire session.[/pay]

[pay]Pattern notes.
Monday afternoon’s slide stopped short of retracing all of the morning’s No-bias rally back to its ESu 1296’00 origin, the S&Ps print at 10:15. Instead the drop bottomed 2 ticks under Monday morning’s 1298’00 bias-up signal. A 9-point bounce into the close peaked upon retesting the morning’s 1306’00 bias-up target.

That price action has been largely repeated overnight, falling back to yesterday afternoon’s 1297’50 low and then surging nearly 7 points to probe 1304’00.

Two attempted tests of 1296’00 do not a test of 1296’00 make. To the contrary, the first attempt’s short-stop might have been considered one leg of the overall downleg whose destination would include 1296’00. But the overnight low’s second short-stop qualifies as optimism, making 1296’00 unlikely to define the downleg’s low.

Indicators and Internals.
Twice as much NYSE up volume as down volume produced fewer than two times more advancing issues than decliners. Not terribly much, but Monday’s sellers were more productive than buyers, which tends to be rewarded the following day. RSI was oversold at Monday’s lows and again overnight. Each time was less oversold than on a prior higher low and could be described as a retest, so I’m not comfortable relying on either as requiring another retest. They’re likely to be retested, but not required.

Tuesday’s opening setup.
A couple of retail reports highlight this morning’s econ calendar. There might be room for pre-open or opening sequence reactions to probe yesterday’s last-minute high around 1307’00. But there’s no time to probe for any longer in order to retrace the rest of yesterday’s No-bias rally. That retracement is now targeting 1293’50, and should be part of an overall move to 1287’00-1288’00. Back above 1307’00 first would keep control from sellers, but not necessarily produce a new upleg.[/pay]

[pay]Pattern notes.
When Friday’s drop to ESu 1262’00 recovered back above 1267’00, a massive short-covering rally reached new relative highs at 1298’00. Tuesday’s massive rally triggered above 1260’00 was similar, and Friday can also be characterized by it lack of selling pressure. Shallow consolidations, steep breakouts and significant gains. And a relentless session-long rally. The following chart highlights another similarity, each day’s 35-point gain from where the last sell-off ended.

Not shown are the comparable measurements between morning and afternoon legs. These and other similarities reveal the same lopsided optimism. That’s what delayed Wednesday’s follow-through, which did poorly upon meeting resistance. Another slow-start Monday is unlikely. Either the follow-through was incorporated already into Friday’s close at 1295’00 resistance, or an opening surge will test resistance at 11303’00-1306’00.

Indicators and Internals.
Friday and Tuesday’s internal spreads were also similar, in that each was evenly balanced – the spread between up and down volume equaled that between advancing and declining issues. That is, until the final 45 minutes. Then Friday’s up volume expanded its lead significantly. This internal jockeying wasn’t matched by price action, which ranged sideways.

Monday’s opening setup.
Falling Crude Oil helped a lot last week. Losses extended further intraday Friday, suggesting that the Georgia/Russia conflict might not impact any pipelines. It did over the weekend, and we’ll see how that plays Sunday night. Ironically, some of Crude Oil’s drop was thanks to the $USD flight-to-safety, which hit some key support/targets at Friday’s low.

If S&Ps aren’t influenced negatively by the foregoing risks, then a surge or gap higher would target 1306’00, where any higher would be very bullish so long as 1303’00 held as support. Otherwise, the paths for initial weakness are etched into the earlier chart’s price axis. Under 1287’00 would target 1275-’00-1276’00 and then back up into the 1300‘s, or else sharply lower to possibly resume the bear market.

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[pay]Pattern notes.
Wednesday’s retest of prior highs might have sufficed after all to complete the corrective bounce. Choppy overnight price action entered the cash session plummeting 17 points under Wednesday’s close and ended the day bouncing from a 25-point loss. The interim price action was a frustratingly difficult 6-7 point range around ESu 1278’00-1279’00 that resumed the decline with a vengeance.

The low was a retest of the 1264’00 area that has been influencing price action for weeks. It also stopped short of testing the 1260’00-1263’00 area that had been the original corrective bounce target from last month’s low.  It has been exceeded twice, both times briefly.

Thursday afternoon’s slide started so late that it can be forgiven for lacking time to extend just several more points to 1260’00-1263’00. But the slide started so late because optimism delayed the decline’s resumption. The resumption remains likely so long as bounces hold any brief test of 1272’50-1273’00. The next bounce potential would be from 1259’25, which will probably resolve down to 1248’00-1249’00. But back above the 1280’00 area would start looking bullish instead.

Indicators and Internals.
Four times more down volume than up volume produced 3 times more declining issues than advancers, inverse from Tuesday’s rally. Why not expect the inverse reaction and reverse up? Tuesday’s trending was countered by nominal resistance, making the session’s narrow internal spreads underwhelming. But as can be attested by anyone who watched Thursday’s session, and watched, and watched, and -oh, wait! no- and watched, sellers absorbed considerable buying pressure. By the way, 3-minute RSI narrowly missed its lowest oversold reading at the price low. The low is still likely to be retested, but not required.

Friday’s opening setup.
The econ calendar is relatively light. This being a Friday, the morning’s bias signal is likely to influence price action well into the afternoon. So if sellers don’t reassert their control early enough, the balance of the session could resemble Thursday’s midsection.[/pay]