Market Wrap

[pay]Pattern notes.
Wednesday’s session did optimists proud. The narrow overnight range never really probed any relevant pullback level before the open gapped up sharply. The gap up extended several points above the extended bias-up target. The eventual pullback bottomed upon touching the overnight high, instead of dipping into the prior cash session. And the afternoon’s recovery was steeper than any other leg since Monday’s low.

Optimism had already held sway over Tuesday’s session, which didn’t pull back at all after the open’s gap up, and barely dipped at all after rallying sharply higher into the afternoon.

None of which equates to being a sell signal – even my stuff isn’t that counter-intuitive. By the same token, two consecutive strong session gains are more likely to precede a third, and less likely to be reversed. Wednesday’s session did end while testing the afternoon’s bias-up target, so Thursday’s open should either refuel buyers by dipping 6 or 9 points, or attract new buyers by gapping up.

Indicators and Internals.
Tuesday’s internal spreads were never rewarded with a dip into negative territory. Wednesday’s internals also reflect more productivity by sellers than buyers, making some dip to a meaningful support level likely at some point intraday.

Thursday’s opening setup.
An overnight or opening dip has room down to ESu 1275’50-1278’25 without undermining a relatively quick recovery to resume the rally going into noon. Any lower would target 1271’00, where any lower would threaten to invalidate Wednesday’s late-afternoon surge. That would quickly undo the past two days’ progress and leave the market ill-prepared to absorb Friday’s Employment report. Otherwise an early 3-point gain above 1287’00 should put into play 1303’00 before again becoming vulnerable to the consequences of excessive optimism.[/pay]

[pay]Pattern notes.
There is recent history to the Esu 1260’00-1263’00 area, which was tested through Tuesday’s last 20 minutes. This was the target of the corrective bounce from July 15’s 1200’75 low. The last time this area held a bounce was Friday’s opening 10-point surge, following a two-day detour that had reached 1291’25 Wednesday.

Tuesday’s rally recovered half the distance from Monday’s close back to Wednesday’s high. The 50% retracement is one of the three most often accompanying a retracement’s end. This would be one of those times with a close under only 1257’00 Wednesday, regardless of any intraday gain.

A close above 1263’00 would be a good first step to proving Tuesday’s rally was much more than a correction from Wednesday’s high. It would remain to be seen whether that yields much more than a brief probe of Wednesday’s high up to 1303’00.

Indicators and Internals.
Despite Monday’s steep decline, its internals had obligated Tuesday’s market to reward buyers for their relative productivity. Tuesday’s internals were the inverse, making at least a temporary dip likely Wednesday. The 3-minute RSI was overbought at Tuesday’s high before the session’s last-minute dip, but the Globex open quickly retested Tuesday’s high to neutralize its magnetic attraction. RSI was oversold at the overnight low – 1231’50 – whose retest is no less required.

Wednesday’s opening setup.
Econ reports are scarcer than quarterly earnings. An opening gap or spike under 1257’00 would target 1249’00. Another couple of ticks lower from there would target a retest of Tuesday’s opening range. An opening dip that doesn’t break under 1257’00 would likely recover and probably probe Tuesday’s highs. I will provide parameters for opening strength if that is indicated.[/pay]

[pay]Pattern notes.
Monday’s drop did some new damage to the charts, but not much more than what was already there. Last week’s high had already retraced entirely back to its origin and back under prior highs, all but requiring the next trending attempt to produce new lows.

The break’s shear size – 14-15 points under prior lows and 26 points off session highs – did test ESu 1235’75. This was the intraday high of the decline’s July 15 low, so the round-trip is almost a new sell signal. It is also natural support, and a bounce has potential up to 1240’00 or 1246’00 without buyers beginning to gain traction.

A bounce isn’t required, but in its absence the decline would likely resume by spiking or gapping down sharply. The next major target is 1218’00, then 1194’00.

Indicators and Internals.
1-minute MACD & RSI diverged positively at Monday’s last-minute low. The last downleg’s sponsorship ended there. 3-min RSI was oversold at the session low minutes earlier. This makes the next trending attempt likely to be either a temporary bounce, or as described above, a gap or spike down with new sponsorship.

Monday’s internals suggest a bounce, whether immediately or from lower lows, since 4 times more NYSE down volume than up volume produced only 2-1/2 times more declining issues than advancers. This tends to obligate the following session to reward buyers for their relative productivity.

Tuesday’s opening setup.
Retail sales data will be announced before Tuesday’s open, then Consumer Confidence 30 minutes into the session. An early bounce to 1241’00 might provide the ideal short-entry opportunity for a new downleg next targeting 1223’50. Bouncing from an early drop would still have potential to 1241’00, and still reverse back down to new lows.[/pay]

[pay]Pattern notes.

If Friday’s open didn’t gap down, then a bounce testing ESu 1261′00 was likely. And if the open tested 1261′00, then sellers were likely to visibly retake control. And if sellers didn’t visibly retake control, then a trading range 2-2 points either way around 1261′00 was likely into the afternoon, until sellers visible took control during the last 90 minutes.

The early bounce held its target, the balance of the morning ranged around it, and then sellers took control. Perfect, except that sellers showed their hands much too early, well before the last 90 minutes. The timing was too soon, and too pessimistic. It produced only a brief new session low that was easily absorbed. Not that buyers exploited their own strength – the balance of the session only ranged 2-3 points either way of the afternoon’s 1255′50 bias-down signal.

Did sellers trap buyers by letting them control an irrelevant timing window when their selling would be irrelevant? It’s possible, although it would be odd for the session to end nearly flat, instead of buyers exploiting the inappropriately timed selling with a rally to new session highs.

In the end, buyers did not retake control and their next opportunity is a gap or spike up at Monday’s open. This show of force is required because their forcefulness Friday was ineffectually optimistic. Buyers never exploited their recovering from new lows overnight, gapping up at the open, and trading almost exclusively in positive territory. Absent a gap up Monday, a gap down is more likely.

Indicators and Internals.
Friday’s 3-minute RSI never touched overbought or oversold during the cash session, such was the lack of conviction. Overnight trending did, but it didn’t leave any unfinished business. Meanwhile internal spreads reflected accumulation, but not by strong hands. More NYSE down volume than up volume produced fewer declining issues than advancers. Had the session closed negative, then this would have been very positive. Instead its just more evidence of sellers giving buyers more rope to hang themselves.

Monday’s opening setup.
No econ reports are due, although the calendar gets heavy as the week goes on. If Friday’s brief gap up setup were repeated at Monday’s open, then any delay this time in reversing down would simply be bullish. Otherwise, sellers should be in control obviously and dramatically at or near the open, if not already Sunday night. [/pay]

[pay]Pattern notes.
The corrective bounce off last week’s ESu 1200’75 low targeted the 1260’00 area. Repeated probes of the target area failed from anywhere between 1263’00-1269’00. A drop back to last week’s low appeared to be underway when Tuesday’s open gapped down, but a rally up to 1291’00 appeared instead.

That rally was pretty convincing. It convinced me that any real threat to extending higher would need to be obvious before Thursday’s open. The real threat appeared at Thursday’s open, and it retraced all of the gain from Tuesday’s gap-down open. Now the corrective bounce’s 30-point extension above the 1260’00 area has served to trap more longs to help fuel the decline’s resumption.

At least, that would be the effect upon closing under Thursday’s 1251’00 low. This is being tested now 4 hours before Friday’s open, the overnight session’s second dip after two bounces that each tested 1256’00.  One more bounce should reach 1261’00 before resuming the drop, or else close above 1261’00 to prove Thursday’s drop was only a detour on the way to 1303’00.
Indicators and Internals.
Thursday’s internal spreads were wide at about four times more NYSE issues declining than advancing, on about seven times more down volume than up. The lopsided ratios still obligate the market to reward Thursday’s sellers for their relative productivity with some sort of bounce, however briefly. Overbought 3-minute RSI accompanied the most recent bounce overnight to 1256’00 so its retest is likely, and likely to provide that reward.

Friday’s opening setup.
Currently a break above 1252’00 is halfway to its modest 1254’25 target, where another 2 ticks higher would put 1261’00 into play.  Call it a last hurrah that, if reached, either triggers a stampede for the exits going into the weekend, or else extends higher with 1278’00 in mind.

The decline might simply restart at Friday’s cash session open, timing similar to Thursday’s start. This scenario would start by gapping down or spiking under 1248’25 and failing to recover positive territory through 10:15.
The day is not wanting for econ reports to keep alive volatility, starting with Durable Goods at 8:30, then two more high-profile reports at 10:00 – Consumer Sentiment and New Home Sales.[/pay]