Market Wrap

[pay]Pattern notes.
Monday morning’s gains had tried to reject Friday’s new lows. Monday afternoon’s dive to new lows rejected the morning’s gains. Monday’s last-minute surge tried to reject the afternoon’s dive. See the pattern? Buyers are trying, but sellers are succeeding.

The last-minute surge did succeed at closing back above Friday’s prior low close, and back above Monday morning’s opening lows. The surge stopped 1 point short of closing above the open’s 1364’00 print which would have given buyers traction. So a gap open above Monday afternoon’s ESm 1368’50 highs would signal momentum extending higher; back under Friday’s 1358’50 low would signal momentum reversing down.

S&Ps have been weakening since the Globex open, and currently range a couple of points under the 1358’50 bias-down signal. Much can happen overnight and the decline isn’t required to trade any lower. There is room down to 1351’50-1353’00 without confirming a new downleg underway, but it had better be underway by Tuesday’s open if sellers have any chance at regaining control in the morning.

Indicators and Internals.
MACD & RSI are not confirming the new lows overnight around 1355’00. This suggests that sellers once again have lost traction, but it doesn’t mean buyers have gained it in their place. Regardless, a bounce up to 1360’00–1362’00 still won’t give buyers traction, so buyers have their work cut out for them if they want to recover.

Tuesday’s opening setup.
Pre-open econ reports will almost certainly exercise some influence over a pre-open trending attempt. More important than the open will be the close – that’s always true, but more so Tuesday because Monday just confirmed the prior week’s break to new lows. A second consecutive lower close would make a third consecutive lower close very likely Wednesday, and probably as a session-long downtrend. Otherwise, I wouldn’t mind participating in a signaled bounce, but I would be suspicious of it and quick on the stop-sale.[/pay]

[pay]Pattern notes.
Friday morning’s pattern left no alternative but for new lows in the afternoon, and for the session to end trending down. That much we knew, and the rest was just a matter of haggling over price. My target was ESm 1362’50, whose touch produced a small bounce with less than 15 minutes remaining in the cash session.

I had said a close under 1360’50 might be worth considering whether to hold short over the weekend, although my own preference is always to consider re-entering Sunday night instead. Sellers took seriously their requirement to trend down into the session’s end, ranging between 1360’50 as resistance and 1359’00 as support after the cash session close.

Gapping up above 1360’50 Sunday night without trading any lower than that would have potential for a steep corrective bounce up to 1366’00-1368’00 (represented by two notches in the nearby chart) before resuming the decline. Otherwise, any lower low Sunday night would be a “new Globex trend extreme” requiring a retest during regular trading hours. The “Friday Factor” says we’ll see the latter scenario, because the opening and closing 15 minutes each trended down, which makes Monday’s opening 15 minutes likely to replicate.

Indicators and Internals.
MACD & RSI began diverging positively into the last-minute probing of new lows under 1359’00. That was mostly and most obvious on the 1-minute chart and not until after the cash session close, so it certainly isn’t predictive. But it would help to justify a firm open as being at least temporarily sustainable.

Monday’s opening setup.
The earlier chart depicts the S&Ps longer-term trend reversal underway, putting into perspective the new ground covered Friday. This nearby chart shows only the past two weeks. Notice how prior lows around 1370’00 seem so far out of reach. A gap above them wouldn’t be permanent, but it would triggered only by developments strong enough to create several days worth of optimism. Otherwise, an econ report is due at 10:00 Monday morning, and the trend in-play after that could persist into Wednesday’s open.[/pay]

[pay]Pattern notes.
The ESm 1393’00-1394’00 buy signal produced a rally that probed the 1400’50 bias-up target by 4 points into and out of Thursday’s close. The gap back to last Friday’s close was filled, and exceeded. Friday afternoon’s highs were touched, but not Friday morning’s 1407’00 high. It can be probed up to 1409’00 before begin considered more than a retest. And it likely will be probed up to 1409’00 so long as pullbacks hold 1403’00 as support.

Thursday’s 28-point rally already seems excessively optimistic ahead of so weighty an event as Friday’s Employment report. That doesn’t mean more excess optimism can’t be added. If anything, a higher high is more likely, and so is a recovery from reacting down about 10 points on the news. But a test of 1409’00 would either stretch the rubber band tightly enough to snap back down, or else break it on the way to sharply higher highs.

A close above 1409’00 would go a long way to avoiding any near-term drop down to 1335’00. It might produce a retest of May’s highs, or else higher. I will address that in the charting room if a higher close appears likely Friday afternoon. Otherwise, any more than a 10-point closing loss would maintain the description of Thursday’s rally as being only a bear market bounce.

Indicators and Internals.
Thursday’s 1393’00-1394’00 buy signal triggered before the afternoon’s 1390’25 low could be retested. That’s sort of a requirement since 3-minute RSI was oversold when the low printed. The retest is only “sort of” required because it can be overcome by stronger sentiment in the opposite direction – that’s just unusual.

Friday’s opening setup.
Friday’s pre-open Employment Situation report will be followed by Wholesale Trade 30 minutes after the open. The timing tends to reverse or else accelerate any initial trending. This being a Friday, the morning’s bias signal is likely to persist well into the afternoon. I will update parameters after the Employment report.[/pay]

[pay]Pattern notes.
A last-minute bounce tested ESm 1380’00 and threatened to end the day in positive territory. A dip prevented that, but only that, as the cash session ended essentially unchanged from Tuesday’s close. If another downleg intends to inject itself anytime soon, then it should be without any further delay. Recent lows have been chipped away at enough either to produce another bounce to 1400’00, or else to allow a break. And a break at this stage would likely be steep and deep, targeting 1342’00 and 1335’00.

Indicators and Internals.
3-minute RSI was oversold at Wednesday’s 1371’50 low, which indicates that it will be retested, regardless of the interim bounce. Two attempts could have resolved the retest, but the unfinished business was left outstanding overnight to attract price down Thursday.

Thursday’s opening setup.
A pattern formed off of Wednesday’s highs whose initial selling pressure was substantiated by the session low. The last hour’s bounce either fulfilled a correction of the initial downleg – in which case Thursday’s open should decline quickly under 1375’25 – or else the bounce was the recovery’s first upleg, and Thursday’s open will gap up above 1385’25.

BOE and ECB interest rate announcements and Jobless Claims highlight the morning, and possibly also the session. Afternoon volatility should contract as price action becomes paralyzed by anxiousness ahead of Friday’s Employment Situation report.[/pay]

[pay]Pattern notes.
It made sense Tuesday morning to consider price action through the lens of stretching buyers thinly. The perspective wouldn’t have made sense during the afternoon’s 20-point drop. A 14-point bounce ahead of the close makes the question valid again, especially after a last-minute dip retraced nearly half of the bounce.

A bounce to ESm 1375’00 before the last hour had already reached high enough to begin a drop to new afternoon lows. Lehman’s denial of earlier rumors converted that opportunity into a surge to new afternoon highs. A second pump reached higher still, and could have put 1385’00 into play if the second pump weren’t retraced entirely back down to its 1376’50 origin.

Indicators and Internals.
Internals weren’t very lopsided for a day that contained so much drama. There is only a minor obligation to reward Tuesday’s sellers for their relative productivity. Either the drama wasn’t meaningful, or else sellers left room for follow-through Wednesday.

Wednesday’s opening setup.
Several econ reports are due throughout Wednesday morning. A test of 1385’00 would be signaled back above 1380’00. Otherwise, under 1375’00 would signal that Tuesday afternoon’s first pump – like Lehman’s rumors – had been denied, and that new lows were in-play. After the 1363’50 bias-down target, the next downleg could reach 1342’00 or 1335’00 before pausing. [/pay]