Market Wrap

[pay]Pattern notes.
The narrowness of Sunday night’s range helped to predict that Monday’s cash session probably wouldn’t trend. Not having any requirement in-play to trend either way was also a factor. Tuesday’s session has a similar freedom that would allow early trending to define a direction independent from Monday’s influences. Of course, with freedom comes responsibility, and no early trending would leave Tuesday’s session captive within Friday’s range, as was the case Monday.

There is no unfinished business above the market whose resolution can be counted upon to attract price higher. A gap up above Monday’s late afternoon highs at ESu 1289’00 would be a start, at least for a corrective bounce with potential to 1306’00-1307’00. This week would be appropriate for that, coming into the seasonal bullishness of a 3-day holiday weekend.

But first things first. There isn’t any unfinished business in-play below the market either, but there does happen to be a requirement to probe new lows for the year. New lows by only about a dozen points down to 1244’00 would satisfy the requirement without letting sellers gain traction, and this would would be appropriate for that. I can’t say that new lows this week won’t continue falling, but waiting too long until after the holiday would be more difficult to recover.
Indicators and Internals.
35% more NYSE down volume than up volume produced 45% more declining issues than advancers. S&Ps finished unchanged, somewhat mitigating the internal negative divergence, and also mitigating Tuesday’s obligation to reward Monday’s sellers for their relative productivity.

Tuesday’s opening setup.
Tuesday morning’s usual Retail reports are followed by two econ reports due 30 minutes after the open. The timing necessitates tightening stops relatively tightly going into the news if trading at all by then. It also allows greater confidence in any trending underway when the dust settles at 10:15. [/pay]

[pay]Pattern notes.
Thursday’s day-long slide didn’t find much opposition Friday. Despite gapping up and then recovering from a momentary dip into negative territory, less than one hour was spent in positive territory. That doesn’t mean sellers gained much traction from Friday’s lower lows – the morning’s ESu 1279’00 and the afternoon’s 1272’75 – since the close settled back above both both.

And what about that close, at 1280’00. It was identified as a target long before interim price action gave 1337’50 a chance to launch another multi-week rally. That opportunity produced only a week-long consolidation before breaking lower. The current setup must also launch a rally, or else fall to new lows for the year.

Regardless of whether S&Ps bounce first, new lows are inevitable. The chart below depicts this year’s price action, showing that S&Ps have made a round-trip back to March’s pivotal low (the low prior to the actual low). Its retest all but requires either probing the actual low, or else breaking it sharply.

Indicators and Internals.
The 3-minute RSI was oversold at Friday afternoon’s low (highlighted green on the nearby chart), which should require the low to be retested. Internal spreads meanwhile were not lopsided – roughly 70% more NYSE down volume than up volume produced roughly 70% more declining issues than advancers – so there is no requirement to reward buyers for any relative productivity.

Monday’s opening setup.
End-o’quarter portfolio window dressing can’t possibly be a bullish factor as indexes attack the year’s lows. Not trading down aggressively might be another sign of sellers not gaining traction from their efforts. That said, a gap up Monday won’t be very credible for holding up through noon, let alone through the week.

All that buyers can hope for at this stage of the pattern is a corrective bounce, and it will be brief if started optimistically instead of by recovering from an intraday dip. NAPM is due 15 minutes after the cash session open at 9:45, and the market’s reaction could be very informative as to whether it is more afraid of falling further, or of rallying too quickly.[/pay]

[pay]Pattern notes.
S&Ps fell to new session low into Thursday’s close, despite the pessimistic break from an Expanding Triangle just one hour earlier. That pessimistic break had bounced 6 points to thoroughly test the ESu 1293’00 area as resistance. The 8-point drop from there came within 5 points of the decline’s big 1280’00 target.

An early drop Friday wouldn’t increase the likelihood for recovering – a bottom formed from washed-out sellers can look very similar to a melt-down’s beginning stages. Optimism has been preventing the market from forming a bottom for weeks, so the chances for a bottom become greater when pessimism rears its head. My last blog entry described the Expanding Triangle’s break (a chart has been added). Another example would be Thursday’s relentless decline as fearful sellers try to avoid a perceived rush on Friday, only to find Friday that everyone sold on Thursday.

None of which is a buy signal, a bottoming signal or a rally signal. But they’re all necessary elements for ending a decline so that a bottom can form and a rally can begin. This leg’s target area is fast approaching, and the market should either bounce aggressively from its test, or else accelerate the decline’s pace to something far steeper and deeper.

Indicators and Internals.
Internal spreads were understandably wide – 5.4 declining issues per each advancer, on 9.7 time more down volume than up. Buyers were more productive, but that starts to become irrelevant when spreads become so wide. Even if there were an immediate bounce, Thursday’s lows should be probed.

Friday’s opening setup.
S&Ps came within 3 points of the 1280’00 target after Thursday’s close. Testing it early enough and then also quickly recovering – perhaps from the 1270’s – would be a clear signal that sellers weren’t going to be a factor again until next week. Thursday’s post-close price action left a gap back to the cash session, and a lower-open Friday would leave another. One econ report pre-open and another 25-30 minutes after the open could play “good cop / bad cop” in attracting buyers back in. Or they might play “bad cop / worse cop” in attracting new sellers for an intraday drop that outweighs Thursday’s.[/pay]

[pay]Pattern notes.
Today’s closing gain belies the intraday drama that played out after the FOMC news. Preceded by the morning’s failed probe of Tuesday’s highs, Wednesday afternoon’s much higher highs were also reversed to close back under Tuesday’s highs. All but the session’s first 10 minutes of trading was retraced within 30 minutes of printing session highs at the top of the last hour. And the session’s last half-hour only ranged sideways at the afternoon’s lows.

Had the last half-hour actually probed the morning’s low – which had gapped up well above Tuesday’s close – this would have reflected pessimism capable of forming a bottom. Instead the market optimistically avoided probing the open’s lows, while those optimists were ineffectual at staging a recovery.

There is no unfinished business above the market, and only unfinished business below. This begins with filling the gap back to Tuesday’s close around ESu 1315’00, and then retracing the rest of Tuesday morning’s no-bias rally back to its 1309’00-1310’00 origin. At this stage, those achievements would probably let sellers continue their control to retest the week’s lows. Otherwise, a close above 1332’00 is the minimum requirement to extend the rally.

Indicators and Internals.
Wednesday’s internal spreads weren’t narrow, which isn’t surprising considering that the session was spent entirely in positive territory, and probed new highs after gapping up. But the spreads weren’t lopsided, showing sellers expending effort equal to buyers. And Tuesday’s bearish spreads were never awarded by trading in negative territory, although they did help to foreshadow the new high’s instability. MACD & RSI diverged positively on a 1-minute chart twice during the last hour’s decline, which buyers seem unable or unwilling to exploit.

Thursday’s opening setup.
Overnight strength might challenge prior highs around ESu 1328’00-1330’00, but  anything less would leave the door wide open for sellers to regain control. Now overnight strength is required, and a gap down back to Tuesday’s 1315’00 area close wouldn’t be surprising. A recovery from gapping down would be surprising, and a busy econ report calendar offers a lot of potential for a catalyst.[/pay]

[pay]Pattern notes.
S&Ps fell 15 points from Tuesday’s high into the close. Another 3-4 points lower would have retraced the rest of yesterday morning’s no-bias rally back to its ESu 1309’00-1310’00 origin. Instead S&Ps have recovered overnight back up to 1323’75.

This happened to be the market’s position when yesterday afternoon’s no-bias signal signaled. I say “happened to be” because its no-bias decline didn’t require a retracement like the morning’s rally still does. Additionally, its retracement originated from a Symmetrical Triangle that developed during Tuesday’s last half-hour, a pattern whose initial breakout tends to be false.

Much can happen before the open in this environment, and probably will. And probably should. Gaps up don’t let buyers gain traction unless the gap is above a prior support or resistance that attracts new buyers. A gap up today would need to challenge yesterday’s highs to consider extending yesterday’s no-bias rally before retracing it. Otherwise, the retracement back down to 1309’00-1310’00 remains likely, where a steep, multi-session rally or decline would be likely.

Indicators and Internals.
MACD & RSI are diverging negatively as S&Ps test the 1323’75 highs. RSI was not overbought at the latest highs, so there is no requirement to retest them, which would allow a pullback here to become something larger. Yesterday’s sellers were very productive, producing 120% more declining issues than advancers on only 12% more down volume than up volume. Absent a gap up above yesterday’s highs to marginalize this reading, the market is obligated to reward yesterday’s sellers for their relative productivity.

day’s opening setup.
The market is sitting at resistance around 1323’00-1324’00, on a false break, with unfinished business below but none any higher. The open is 2-1/2 hours away, with Durable Goods due an hour before the open, and New Home Sales 30 minutes after the open. Not to mention the FOMC decision at 2:15. The optimism seems pretty thick – it can get thicker or it can be deflated to discount the compilation of unknowns just around the corner. This key to predicting this morning’s price action will be considering which of these two factors is influential. [/pay]