Market Wrap

[pay]Pattern notes.
Yesterday’s last comments noted that steep drops like Friday, when followed by an inside day like Monday, tend to resolve down… Any rally prior to printing lower lows would be expected to fail. An overnight rally eventually reached ESu 1322’50. But only 30 minutes was needed to plummet 15 points down to 1307’25, 8 points under Friday’s prior low.

This indicates a gap to be outstanding from yesterday’s close. Add it to Friday’s gap from Thursday’s close, which eventually begins to suggest that sellers are getting ahead of themselves. That could allow this morning’s selling to find a near-term bottom capable of producing a meaningful bounce like 25 points before resuming the decline to its eventual 1280’00 target.

Indeed, I suspect that simply continuing lower without first refueling would require selling pressure capable of pushing the market to new lows for the year. After all, buyers did fail to exploit a potential bottom at the prior downleg’s 1337’50 target. So this is pretty critical stuff developing before our eyes.

Indicators and Internals.
The 3-minute RSI was oversold at the 1307’25 “V” low, requiring its eventual retest. The indicator printed overnight, and there is plenty of time to fulfill the retest pre-open. But indicators were so deeply extended that the price low’s retest might find it difficult to reverse up or even to bounce without delay.

Tuesday’s opening setup.
The most relevant numbers at this level are this morning’s bias parameters of 1309’00 and 1314’00. S&Ps currently sit in the middle at 1311’50 after having bounced 5 points off the low. Lower lows would target 1300’25, either from bouncing to 1314’00 or else from first breaking under 1309’00.

The normal array of weekly retail sales metrics is due pre-open, then Consumer Confidence at 10:00 – timing that often reverses or accelerates any initial trending underway. Anxiousness ahead of Wednesday’s FOMC decision might compel shorts cover, thinking the market might be discounting too much bad news. But I don’t see anxiousness ahead of the FOMC news actually paralyzing price action.[/pay]

[pay]Pattern notes.
Saudis committed to ouput hikes over the weekend. Psychologically that has to have an immediate effect on Crude Oil, and that would to have an impact on stocks. How interesting, then, that Friday’s session behaved pessimistically throughout. Even at the close when two last-minute short-squeezes were rejected from trying to rally.

Friday’s open gapped under prior lows and extended lower. A bounce also tested the prior lows as resistance before resuming the decline and then closed under the morning’s lows. The last characteristic is important because it’s not accumulative and makes a recovery attempt unlikely to be maintained anytime soon. Meanwhile the Friday factor suggests that Monday’s open will also trade down (from the opening tick, even from gapping up higher).  saudis commit to ouput hikes. I will be assessing price action within this context, confirming or invalidating whether sellers are losing traction and buyers are gaining it.

The bigger picture doesn’t change the context, except to further confirm it. Now two prior gap-ups have been filled, which tends to reflect substantial selling pressure. Not that the selling can’t be corrected, but buyers will need to maintain early gains to avoid S&Ps melting down further.

Indicators and Internals.
RSI was oversold at Friday’s last low, requiring its retest. A close above Friday’s high would neutralize the obligation – possible, but difficult. If somehow sellers control Monday’s open and produce new lows while RSI diverges positively, then I would be open to nibbling at a long position. But a stronger long position would need overbought technicals to accompany breaks above resistance levels.

Monday’s opening setup.
Friday afternoon’s bias-down target was ESu 1318’00 which held as support at the close, so there is no near-term unfinished business below to attract prices lower. But there’s not much of a pattern to be considered accumulative at the lows, which makes me suspect any rally attempt’s ability to hold.

No econ reports are due Monday. This week’s highlight is Wednesday afternoon’s FOMC interest rate decision. A case has been made for raising rates, and the argument just got stronger thanks to this weekend’s news from the Saudis. So, economic forecast revisionis could still be a factor Monday despite an otherwise empty calendar.[/pay]

[pay]Pattern notes.
Thursday afternoon’s break to new session highs did several things, some of it potentially bullish, the rest not so much. One the bullish front: 1) the ESu 1349’75 high chipped away at Wednesday’s prior highs, and 2) that’s pretty much it.

The bearish factors were greater in number. S&Ps were all but obligated to probe higher highs after repeatedly chipping away at the morning’s 1343’00 highs, and now that magnetic attraction has been neutralized. The breakout attempt was reversed back under the prior highs. The reversal fell back under 1342’50, my preferred recovery signal.

No doubt both the rally and its reversal – and all of the past two sessions’ rallies and reversals, were influenced by the impending Quadruple Witch expiration. Friday’s price action might be influenced, too – just a bit. Thursday’s close did hold repeated tests of the recent decline’s 1337’50 target as support, which continues to be potentially bullish for forming a durable bottom, awaiting a bullish close.

Indicators and Internals.
Internal spreads were relatively narrow and evenly balanced. That’s fair, considering the session ended near its midpoint. But the internals did not reflect accumulation, which should be among the first signs that the prevailing trend might be reversing.
Friday’s opening setup.
The economic calendar is clear in deference to Friday’s Quadruple Witch expiration. Friday morning’s bias signal tends to persist well past the noon hour. This applies as much to a bias signal as to a no-bias signal. The most bullish scenario would be a drop under prior lows that originates after signaling no-bias, then a recovery into the 1340’s through the afternoon. That might be the only bullish scenario, as every other opening gambit either perpetuates the consolidation or begins another downleg.[/pay]

[pay]Pattern notes.
I’ve tried dutifully to justify Wednesday’s price action as having completed a bottom. The session low once again held a test of the decline’s ESu 1337’50 target. That pretty much sums up the bullish argument. I’ll defer largely to yesterday afternoon’s blog entries for more detail. But essentially last week’s 1330’00 low still requires a retest, Wednesday’s close didn’t recover a prior high, and excessive optimism remains highly visible as recent as Wednesday’s late-afternoon surge from a momentary new session low.

The optimism might be artificially induced by Friday’s impending Quadruple-Witch expiration. By the same token, so might be the hesitation to begin a new downleg. We can’t get caught up in playing that game, but we should certainly be aware of the potential for sudden reversals triggered by position jockeying both going into and coming out of Friday.

Recent blog posts are littered with the potentially bearish factors. One more that hasn’t been listed would be the poor track record of expirations being accompanied by major market turning points. For that reason and the others, I will continue to be suspicious of rally attempts while awaiting a retest of last week’s lows where a break would trigger a steep, deep downleg.

Indicators and Internals.
Internal spreads weren’t very lopsided between advancing and declining issues and between up and down volume. That’s somewhat surprising considering the open’s gap down and entire session spent in negative territory. MACD & RSI  had signaled the low of Wednesday’s last-hour decline, but the bounce it produced was ended by MACD & RSI deteriorating.

Thursday’s opening setup.
Wednesday’s late-afternoon bounce attacked session highs at 1346’25, but tracked a template capable of producing new session lows at least 12 points lower. The drop produced only 8 points before the close, but 1335’00 was just touched overnight. Much can still happen before Thursday’s cash session, but it is currently indicated to gap down at Wednesday’s lows.

These gaps down do expend selling pressure without helping sellers gain new traction, so one bullish setup would be for a gap down to probe new lows and recover into the noon hour. Thursday’s calendar has high-profile reports before and after the open which helps volatility, and the chance for a near-term bottom. But the potential for a durable bottom is another matter.[/pay]

[pay]Pattern notes.
Monday afternoon’s brief new high was rejected by closing back under prior highs. No prior low was harmed in the process, so another rally attempt was still possible. S&Ps did rally overnight, and surged to ESu 1372’00 before Tuesday’s open. Had this action been sustained in any way, then Monday’s last-minute dip would have been rejected. The excessively optimistic bubble would have gotten a second-wind (sorry) to extend sharply higher.

But the pre-open action wasn’t sustained. The cash session open’s first print at 1368’75 was essentially the same as Monday’s high (1 tick higher), leaving no gap outstanding to magnetically attract price higher and to inhibit a decline. The pre-open high’s “new Globex trend extreme” was ignored in favor of a session-long decline that touched Monday’s 1352’25 low.

The bubble of excessive optimism should pop with a much louder sound than that of Tuesday’s relentlessly steady drip lower. If the actual pop comes Wednesday then it should be in the form of either forcefully rejecting a strong open, or else gapping down sharply. The forceful open could persist into the afternoon before peaking, but a gap down should make Tuesday’s sellers seem like bulls in comparison.

If the bubble isn’t popping, the action would resemble the strong opening scenario, or a recovery from initial weakness. Econ reports are scarce until Thursday, with Friday’s Quadruple Witch expiration no doubt bearing some impact.

Indicators and Internals.
80% more NYSE down volume than up volume produced only 55% more declining issues than advancers. Wednesday’s market is obligated to reward Tuesday’s buyers for their relative productivity, that much is not surprising. But the spread between advancers and decliners isn’t very wide considering a session-long 20-point drop.

Wednesday’s opening setup.
Tuesday’s last leg down targeted ESu 1353’50. The target was overshot momentarily, then recovered at the close. MACD & RSI diverged positively as S&Ps printed a lower low at1351’00 after the Globex open, soon followed by a test of 1355’00. There is room up to 1358’00 as a simple correction of Tuesday’s decline, if not another 4-1/2 points higher. Anything more would start targeting a retest of Tuesday’s pre-open high, and further bubble inflation. [/pay]