Market Wrap
Trading Plan for 5/27
[pay]Pattern notes.
Thursday’s session had hardly even feigned interest in trying to reverse Tuesday and Wednesday’s decline. So we already knew how Friday’s session would resolve. The path wasn’t without its surprises: The open gapped down instead of failing an opening surge, and the Globex lows were broken instead of their test producing a bounce back to Thursday’s close. But targeted support and resistance influenced price action, so confidence remains high that we’re tracking the right pattern.
Perhaps the market’s most interesting characteristic has been its recent tradition of delaying a pattern’s resolution until its last possible moment. From last Wednesday’s reversal setup back to April 30’s first rejection of a new high intraday, a plurality of participants has been acting on its optimism and delaying the inevitable. The latest example came as late as Friday’s last-minute dive to new lows, which had been targeted earlier in the day.
Excessive optimism is potentially bearish from a contrarian perspective. The sentiment is a stark contrast to the relentless sell-off from Monday’s high, and indicative of how much more room there is for pessimism to grow and for prices to shrink. Indeed, April 30’s low and its May 9 retest were broken only Friday, all but the last confirmation to Tuesday’s signal that the larger trend had turned down.
Indicators and Internals.
Friday’s volume wasn’t too shabby for the last day preceding a three-day holiday weekend. Once the open had broken under overnight lows, there was almost no chance for sponsorship of a new direction. The pace actually slowed during the rally and ranging at Friday afternoon’s highs. Then it accelerated sharply into the closing dive to new session lows. The spread between NYSE down and up volume was twice as wide as between declining and advancing issues. This ratio obligates Tuesday’s market to reward Friday’s buyers for their relative productivity, unless the open gaps down to new lows. The Friday factor is predicting just that, because both the open and closing 15 minutes trended down.
Tuesday’s opening setup.
No doubt some portion of Friday’s selling was intended to limit exposure ahead of the three-day illiquidity. That can be bullish from a contrarian perspective. The bigger picture still appears to be driven by bigger distribution that is aware of more supply coming down the pipeline. The contradiction between both motivations for selling can be resolved by gapping down sharply. A gap up is possible, but it would only delay the eventual move to lower lows, triggered perhaps by the 10:00 econ reports (Consumer Confidence and New Home Sales).
PROGRAMMING NOTE. Bias signals are available for Sunday night’s Globex session. I will publish new parameters Monday night for Tuesday.[/pay]
Trading Plan for 5/23
[pay]Pattern notes.
Price action during relatively illiquid environments can be deceptive. And liquidity began evaporating soon after Thursday’s opening sequence. So it is interesting that Thursday afternoon’s last two thrusts were attempts to break under session lows – failied attempts. This doesn’t make an eventual break under Thursday’s lows unlikely, it’s just unlikely without first rallying – and then failing that.
Thursday’s range formed an Ascending Triangle. The setup has appeared several times during this week’s decline, and in each instance producing a momentary blip-up that quickly reverses down to lower lows. Eventually that fails, whether the blip-up simply forgets to blip-down, or the first break is down. We’ll still watch for the former scenario of a blip-up and still be ready for the latter.
Under normal circumstances I would absolutely expect a bearish resolution to Thursday’s narrow ranging that seemed to cheerfully ignore Wednesday’s drubbing. Liquidity is quickly evaporating as many traders try squeezing a four-day holiday weekend out of three. That might only limit the initial follow-through of a breakdown, but not inhibit its attempt.
Indicators and Internals.
MACD & RSI were mixed at Thursday’s close, but then so was price. Earlier signals had produced meaningful intraday moves. Internal spreads were hardly lopsided. So Friday’s session isn’t being entered with any unfinished business outstanding from internals or technicals.
Friday’s opening setup.
The calendar’s only econ report is Existing Home Sales at 10:00, generally a high-profile report, whose post-open timing can accelerate or reverse any initial trending underway. If there’s no trending signaled at the 10:15 timing window, then the balance of the session probably won’t trend at all. There might be an exception during the last two hours if an otherwise boring environment suddenly tries coming to life before the close – it might actually appear to rise from the dead, but then contrary forces would show it the true definition and beat prices back into through the range. Early trending would keep things lively throughout the day.[/pay]
Trading Plan for 5/22
[pay]Pattern notes.
Wednesday’s drop was the first to close back under a prior reaction low. That’s a big deal to me. S&Ps have been swatted down several times since probing above February’s prior highs. In all prior instances, even when intraday dips have probed lower lows, buyers prevailed by the close or in some other timely fashion. That’s going to be difficult at this time following a single-session 20-point drop.
Regardless, prior dips weren’t attempted with the same vigor seen Wednesday. The damage is done, and a trend change is being signaled. Timing might be another matter, since liquidity ahead of the holiday weekend will soon start evaporating. Sponsorship for trending in either direction will become increasingly difficult, and volatility might all but disappear after Thursday afternoon.
Indicators and Internals.
MACD & RSI diverged positively into Wednesday’s last-minute probes of new lows. The close back above prior lows helped to rob sellers of their traction. Between those two lows there is an interim high, which an overnight rally is trying to exceed. In fact, in the past 2-1/2 hours S&Ps have momentarily probed Wednesday’s last relative high three times. And on each attempt both MACD & RSI have failed to improve. So although sellers lost traction at the low, buyers have not regained it at current highs.
Thursday’s opening setup.
S&Ps are indicated to gap up at this moment, four hours prior to Thursday’s cash session open. This would leave outstanding a gap back to Wednesday’s close. The gap’s magnetic attraction will inhibit the morning’s rally efforts, if there even is one. Jobless Claims at 8:30 might affect those chances. If the decline’s resumption can be avoided through the morning’s 10:15 timing window, it will likely be avoided until next week.[/pay]
Trading Plan for 5/21
[pay]Pattern notes.
Tuesday’s late-afternoon bounce from ESm 1409’00 up to 1415’25 and back again formed a Double Bottom. A short-squeeze into and out of the cash session close fulfilled the afternoon’s bounce potential up to 1418’00, and now a higher high has touched 1420’00. I still consider this to be a correction from which the decline will resume.
Recall yesterday’s last post and comments in the charting room: I described the optimism reflected by Tuesday’s lows forming just above last Wednesday’s close in the 1407’00-1408’00 area. A recovery from probing under the prior low would have been impressive, while the actual bounce only speaks of impatient buyers. At this moment Wednesday’s open is indicated to gap up optimistically 6 points more instead of gaining traction by advancing tick by tick.
The gap up would test last Wednesday’s ~1421’50 prior high, which is pretty big resistance to attack having expended so much buying energy. Any higher on a closing basis would question again whether the bearish scenario was in-play. Otherwise, it is, and back under 1411’75 simply points down.
Indicators and Internals.
There wasn’t much special about MACD & RSI during Tuesday afternoon’s Double Bottom, so the overnight gain isn’t fulfilling any prophecy. Technicals deteriorated somewhat after touching 1420’00 but nothing at this moment to signal a downturn. Internal spreads did obligate Wednesday’s market to reward Wednesday’s buyers for their relative productivity, which any gap up would neutralize immediately.
Wednesday’s opening setup.
Today’s pre-open report is limited to the weekly MBA Purchase Apps. This afternoon at 2:00 ET is FOMC Minutes, which is very reliable at stirring things up. Price action 1-2 hours before the report is often paralyzed from anxousness. Perhaps more important is that volume should start tapering off Thursday afternoon before nearly evaporating Friday. That means Wednesday is the last full day of liquidity before the three-day weekend. If buyers have any chance at retaking control before a bigger decline, they probably need to do it before Thursday begins.[/pay]
Trading Plan for 5/20
[pay]Pattern notes.
It’s (still) alive! That is, the bearish scenario is still alive. That would be the bearish scenario likely to resume at Friday’s opening tick – and it did, dropping S&Ps 13 points through the morning. Friday afternoon’s recovery retraced it, and Monday’s rally through early afternoon extended it.
The bearish scenario seemed all but dead. Okay, it seemed to be dead, but then S&Ps dropped 21 points all the way back down to last Wednesday’s high. One-third of the drop was retraced by a bounce into Monday’s close. Since Friday’s pre-open prior highs did hold as resistance, the last minute bounce didn’t negate the drop. But Tuesday’s open can’t delay resuming the decline.
On another note, the nearby chart depicts May’s recovery attempts. Just before the first of these probes began, I had described here the potential for a 
brief, false breakout targeting either ESm 1425’00 or 1446’00. Any of the subsequent attempts seemed to fit the template, but the best attempt at resuming the decline did not. Monday’s failed surge is the template’s next chance to form.
Indicators and Internals.
The chart also depicts MACD & RSI diverging negatively at Monday’s highs. Whether or not the afternoon’s drop fulfilled the setup, technicals were mixed at the low, such as on the 9-minute chart shown here. MACD & RSI made higher lows on the 3-minute chart, but RSI’s higher low was still in oversold territory and indicating at least a retest.
Tuesday’s opening setup.
Half of Monday’s last-minute 8-point bounce happened after the cash session close. The Globex open gapped down only 2 points but that will need to keep sliding if the decline intends to resume at Tuesday’s open. Three of the pre-open econ reports regard retail sales, and one of the other two is 30 minutes after the open. There’s not much excuse – if any – for delaying any trending in either direction.[/pay]