Market Wrap

[pay]Pattern notes.
Wednesday’s path largely followed the expected template calling for a pullback to be recovered back to prior highs. The pullback was nearly 3 points deeper and several hours longer than expected. But the afternoon’s rally peaked at the ESu 1291’75 target nonetheless.

The premise of the template has yet to be proved. The pullback’s purpose was to refuel more speculative buyers to trap as many longs as possible, so the new high could be hit hard by sellers. The longer pullback left less time for that last stage, so the session closed just off its highs at 1288’00. Recent highs were barely probed intraday, and they should be, so their having held as resistance doesn’t reveal much about the quality of selling pressure. As for buyers, the modest probe of recent highs could either mean they’re tired, or patient. Not enough information to choose.

The failed higher high scenario need not evolve entirely during a single session, so the next day or two could contain the trend change. They could also contain the new rally leg. Either template would be appropriate here, so I will let the market decide. An immediate drop overnight would be less appropriate than modest pullbacks. So Wednesday’s last-hour dip or a little lower to 1283’00 should launch a retest of Wednesday’s high, probably up to 1294’00-1295’00 or possibly to 1303’00 before becoming vulnerable to sellers regaining control.

Indicators and Internals.
3-minute RSI was overbought while Wednesday’s high was fulfilling its target, requiring the high’s retest once the last hour’s pullback has finished. It was the session’s only overbought or oversold 3-min RSI reading, which speaks to the generally complacent sentiment. That’s not bullish. Internal spreads were almost equally weighted for the second consecutive session, so Tuesday’s rally didn’t improve optimism, which also doesn’t seem bullish.

Thursday’s opening setup.
BOE and ECB interest rate decisions will influence price action well before the cash session open. Jobless Claims won’t be far behind, and then Pending Home Sales will follow 30 minutes after the open. This should provide plenty of volatility to test both buyers and sellers. The otherwise listless RSI won’t help S&Ps extend beyond its nearest support or resistance, instead making a reversal back into the range likelier, at least the first couple of times that either end of the range is tested. [/pay]

[pay]Pattern notes.
It’s not that sellers were mostly in hibernation Tuesday. Yes, actually, they were. But not physically asleep. Yeah, probably. S&Ps gapped up at the open, soon surged, trended higher into the FOMC news, and extended higher after its reaction. The eventual gain: 35 points. The biggest dip was down 8 points in 6 minutes in reaction to an 11-point, 3-minute surge. I wouldn’t characterize it so much as selling, as it was buyers stopping to catch their breath.

If selling was only a spectator sport Tuesday, then exactly what did buyers accomplish? Territory was acquired, but for how long, if none of the enemy was captured along the way? A lot of buying pressure was expended to traverse from the range’s lower-end to its upper-end. Targets are no longer available to attract price higher when needed to recover from a pullback. Tuesday’s success might prove only to be at stretching buyers thinly.

Regardless, Tuesday’s rally should at least initially stretch further Wednesday. The FOMC decision no longer hangs over the market, and there is something bullish about predictability. Even mildly bad news in the rear view mirror can be preferable to an unknown quantity coming through the windshield. But when this benefit fades soon after the open, the scene might resemble a game of musical chairs. The character and measurements of that pullback could be very predictive of the next 75-125 points either way.

Indicators and Internals.
Four times more NYSE up volume than down volume produced three times more advancing issues than decliners. The spread is wide enough to expect some follow-through, despite relatively less productive buyers. But their productivity seems even lighter considering that buyers essentially owned the day, and in a big way. Overbought 3-minute RSI at the cash session high was followed by negative divergence 1 tick higher after the Globex open – the pattern is small, and its pullback target is incorporated into the comments below.*

Wednesday’s opening setup.
We’ll know very soon whether Tuesday’s rally accomplished something other than refueling sellers. This being a Wreversal Wednesday, extending too far too quickly might be just what Tuesday’s patient sellers had in mind.

Tuesday’s ESu 1285’00 high attacked recent highs that are 5-6 points higher.  If sellers weren’t interested in preventing that attack, then they won’t try to stop a probe of higher highs, maybe after pulling back to 1279’00 so as not to raise suspicion (*and to fulfill the negative divergence described above). But then, similar to Tuesday’s test of 1260’00, a break above 1303’00 won’t be likely unless the rally were extending much higher again.

Programming note: Don’t forget that if you miss the Morning Market Tour, it’s recording is linked from the blog’s sidebar and available by 9:15 daily.[/pay]

[pay]Pattern notes.
Was Monday’s session really different from Friday? Each slid sharply at the open, to levels that would define the session’s lower-end, each slide was brief, and each session ended in a last-hour dive that started from a failed bounce. Monday’s session did differ from Friday by not ranging narrowly intraday. Instead, the morning’s entire loss was retraced by a 13-point rally, where a last-hour 14-point plunge probed new session lows.

Tuesday’s opening setup.
The FOMC interest rate announcement doesn’t come until 2:15. Two retail metrics are released pre-open, followed by the ISM Mfg report 30 minutes after the open. The timing tends often to accelerate or else reverse any initial trending. It will be interesting to see what degree of trending is possible with the FOMC news just hours away. That news is likely to surprise any trending opposite the direction of the current decline, but I’ll certainly have some parameters available going into the afternoon. [/pay]

[pay]Pattern notes.
The majority of Friday’s session bounced frustratingly within a 10-point range. This was in spite of the open’s 21-point slide, extending Thursday’s last-hour 26-point slide. With the weekend’s illiquidity fast-approaching, sellers had momentum and motive in their favor. But the open’s drop ended their reign on the day. Had sellers taken things too far, or had they simply gotten ahead of themselves?

Perhaps a little of each. Friday’s extended, narrowing ESu 1254’00-1263’50 range is likely to break falsely in one direction, then reverse more substantially in the opposite direction. A false break need not be shallow before reversing back into and through Friday’s trading range, especially if Friday’s ranging extends through Monday’s open. The longer that trending is delayed, the more likely it will not be immediately reversed, probably not before visiting 1269’00 above, or 1248’50 below.

The false break scenario is undermined when started by gapping beyond the range, and maintained through a relevant timing window. Undermined, but not necessarily invalidated. Regardless of gapping open or not, 1272’50-1275’50 is meaningful resistance that can be probed briefly intraday back to last week’s 1282’50 highs, and still be likely to hold on a closing basis. A close above 1272’50-1275’50 isn’t likely unless buyers are back in control.

Indicators and Internals.
20% more NYSE down volume than up volume produced only 5% more declining issues than advancers. I don’t think Monday’s session is very obligated to reward buyers for their relative productivity, because they weren’t much more productive than sellers. Meanwhile, MACD & RSI each ranged around their neutral readings to mirror price action, giving no signal or new unfinished business either way.

Monday’s opening setup.
The upward slope of Friday’s trading range reflects optimism, so I suspect the ultimate resolution will be down. So unless Monday’s open is indicated to gap down under Friday’s lows, the initial false break is likely to attempt trending up. Anxiousness ahead of Tuesday’s FOMC announcement will try to inhibit strong moves either way. Unless an uptrend attempt gaps through 1272’50-1275’50, or an initial drop is shallow, the rally is unlikely to resume.[/pay]

[pay]Pattern notes.
What a difference an hour makes. Until then, S&Ps had retraced the open’s gap down, and then held a retest of the morning’s low. Most of that second drop was recovered – at least the relevant part, a couple of points above the ESu 1281’00 bias signal (the morning’s bias-down and the afternoon’s bias-up). Whether or not directly related to Greenspan’s CNBC appearance, S&Ps slid nearly 18 points to 1265’00.

The session’s ineffectual pessimism should have helped to absorb Friday’s Employment report, but pessimism became effective, sliding more than 6 points under the morning’s low. The drop stopped optimistically short of touching Wednesday’s lows just 1 point lower, reason to doubt an immediate rally from Thursday’s close.

An immediate drop wouldn’t be much more credible, more likely to bounce from the 1260’00-1263’00 area instead of breaking under it. Falling back from testing 1272’50 – or just gapping under 1260’00 – would be credible for extending down another 7 points, targeting the week’s 1231’50 low and lower. Gapping up above 1272’50 would help to reject Thursday’s late drop, so it might be bullish, and I would comment on that at the time.

Indicators and Internals.
Oversold 3-minute RSI at Thursday’s last-minute low makes a recovery unlikely – at least, unlikely until retesting Thursday’s last-minute low. The spread between NYSE down volume and up volume far outpaced the spread between declining and advancing issues, thanks to the last hour’s drop suddenness. Regardless of its cause, this does increase the potential for a bounce, no matter how temporary.

Friday’s opening setup.
The Employment report isn’t this week’s last econ report. Two more are due at 10:00, 30 minutes after the open, timing that tends often either to accelerate or reverse any initial trending underway. That could make the bias signal a last-minute affair. This being a Friday, the morning’s bias signal is likely to persist past the noon hour. And this being an Employment Situation report, I’ll update parameters before the news, or earlier as needed.[/pay]