Market Wrap
Trading Plan for 5/12
[pay]Pattern notes.
Friday’s open gapped down and spent the entire session in negative territory. The setup might seem to be “ineffectual pessimism” since the open’s low never extended further down. But that would ignore the overnight low’s “new Globex trend extreme” that never delivered its required retest during regular trading hours. Friday’s narrow ranging was was less an inability to decline, and more a hesitation. Afternoon strength was also more optimistic than pessimistic.
Big ideas die hard, and such may be the case with the two-month rally’s notion of being a bull market. The nearby chart defines two sessions in red. 
The more recent one was Wednesday’s session-long decline – from its pre-open (not shown) test of the prior Friday’s cash session high, closing under the prior low. The older red session was the prior Wednesday’s failed probe of (then) new highs that also reversed down to close under its prior low.
Both setups reflect distribution. The two major difference between them is that last week’s reversal wasn’t immediately rejected. And as for the older setup’s rejection, last week’s decline rejected the rejection. And now Friday’s session has left unfinished business below to attract price lower.
Indicators and Internals.
75% more NYSE down volume than up volume produced only 20% more declining issues than advancers. This obligates Monday’s session to reward Friday’s buyers for their relative productivity, unless Monday’s open maintains a gap down to new relative lows. MACD & RSI nearly ended the day having diverged negatively from the afternoon rally, but that was neutralized by the last half-hour’s 6-point plunge.
Monday’s opening setup.
The gap back to Thursday’s cash session close wasn’t filled Friday, which is one of the few potentially bullish factors that could facilitate opening strength Monday. Not gapping down under Friday’s lows would leave open the potential for an intraday bounce. Gapping down to Friday’s pre-open trend extreme could hold its test to produce a bounce, too.
This week’s earnings announcements, econ reports and Bernanke sightings offer plenty of catalysts for volatility. If news before Monday’s open like MBIA’s earnings doesn’t send the market plummeting, then it could instead clear the decks for a relief rally back to Thursday’s ESm 1397’75 cash session close. According to MACD & RSI deterioration into last week’s high and low, a relief rally would only clear the decks for a bigger downleg to get underway.[/pay]
Trading Plan for 5/9
[pay]Pattern notes.
Narrow ranges come and go. Instead of covering ground, the only spoils of most go-nowhere ranging is a session or two, and our attention. There is some meaning in almost every session, less so when less ground is covered. But within the context of Wednesday’s session-long decline, Thursday’s ranging was quite bearish indeed.
The bullish scenario’s task Thursday was to reject the clear message delivered Wednesday. That it came wrapped in a session-long decline was only a distraction – producing an oversold situation that would slow the descent.
The message itself was that significant support had been broken on a closing basis. An example of that support is last Friday’s low, which rose to be so significant because Wednesday’s high had touched Friday’s high.
Thursday afternoon’s rally attempt added insult to injury. First by neutralizing the magnetic attraction of overnight highs, and then by rejecting the rally with a close back under the session’s prior highs. The latter statement was nearly made untrue by a bounce into the cash session close, but it stopped just short of success. S&P futures then plunged to lower lows into and out of the Globex open, now threatening to resume Wednesday’s decline into the weekend.
Indicators and Internals.
Several buy setups were rejected on the way down to Thursday’s lows. The early-afternoon rally attempt settled the discrepancy, allowing MACD & RSI to confirm the late-afternoon drop. 13% more NYSE up volume than down volume produced 40% more advancing issues than decliners on moderately heavy volume, which would normally obligate Friday’s session to reward Thursday’s buyers for their relative productivity. That obligation is always rendered moot by a gap under session lows (and verse-visa when the obligation is reversed), and that is currently indicated overnight.
Friday’s opening setup.
Another support broken Wednesday was the gap down to Tuesday’s open. The next evidence of sellers taking control would be a close under last Thursday’s 1384’00 low. That’s probably the most important, since the two prior broken supports were created after months-long resistance had been broken. The level is being probed now by 2 points, creating a
“new Globex trend extreme” that will require being retested (or exceeded) during regular trading hours – not necessarily today, but probably since MACD & RSI are confirming.
This being a Friday, holding an early test of support would likely immunize the balance of the session from selling pressure, if not also invite a rally. But not holding a probe of new lows after so much distribution and chart damage – with two days of illiquidity just hours away – would be vulnerable to a session-long decline on large-scale selling.[/pay]
Trading Plan for 5/8
[pay]Pattern notes.
Tuesday’s rally had extended higher after the close until touching ESm 1424’00 where Friday’s cash session had also peaked. Wednesday’s cash session decline closed under Friday’s 1406’00 low. Wednesday’s close was also 2 points under Tuesday’s 1397’00 low. Yesterday’s setup is similar to last Wednesday’s rejection of new highs intraday that reversed down to finish back under the two prior high closes – indeed the same two prior high closes were retraced yesterday.
Yesterday’s set-up is no less distributive than last Wednesday’s rejected high. Its rejection should be as dramatic as last Thursday, or else it should be confirmed by lower lows without much delay. The single-session test of both Friday’s high and low can serve by proxy in place of actually testing Friday’s 1427’00 pre-open high, so long as lower lows are not delayed.
What would delaying lower lows look like? A recovery above one or two price levels that had previously served as support. One example is Wednesday’s 1400’50 open that had required a retest and now serves as resistance. Last week’s prior high at 1404’00 is also back to being resistance. Closing back above one or both of these levels Thursday would make buyers all but invincible. In place of that sustained strength, any temporary strength should resolve down as a new downleg begins.
Indicators and Internals.
Positive divergences among MACD & RSI at Wednesday’s 1390’50 low gave buyers an edge for early overnight trading. So far that has produced a bounce to within 1 point of 1400’50, while MACD & RSI show only the least bit of deterioration. Meanwhile, Wednesday’s internal spreads were about 5 times more down volume than up volume producing only about 2-1/2 times more declining issues than advancers. This lopsidedness suggests that at least some part of the overnight rally attempt will persist into Thursday’s session as the market rewards Wednesday’s buyers for their relative productivity.
Thursday’s opening setup.
Jobless Claims is the week’s last high-profile econ report, but it might be overshadowed by interest rate announcements from the BOE and ECB. The pound and euro have been deteriorating recently to new relative lows, so this could be the catalyst that makes the Dollar’s rally obvious to all. If the Dollar’s initial reaction to currency moves is likely to persist throughout the day, then the S&Ps initial reaction to the Dollar should also have legs.[/pay]
Trading Plan for 5/7
[pay]Pattern notes.
The afternoon’s rally seems a little optimistic ahead of the widely watched event of CSCO’s earnings after the close. It paid off, so far, and probably speaks more to the magnetic attraction back to Friday’s pre-open high at ESm 1427’00. The question is what happens then, and the answer might lie in Tuesday’s open – it’s gap down will want to be filled back down to 1400’50, and that’s like an anchor around the rally’s neck.
First things, first. The low of the consolidation at Friday’s pre-open high was 1422’25, which was touched at Tuesday’s high. The actual 1427’00 high is likely to be pierced (and not just touched) so long as pullbacks now hold any brief test of 1418’50. Under 1417’50 would more likely trend down another 8 points.
Indicators and Internals.
MACD & RSI were nearly useless before Tuesday’s cash session open, then nearly indispensable during the session’s rally. S&Ps surged after the cash session close while MACD & RSI diverged negatively, but that didn’t prevent a higher high, so MACD & RSI might be useless again overnight. Internals weren’t bullish, with more than twice as much NYSE up volume as down volume producing fewer than twice as many advancing issues as decliners. This doesn’t apear to be a market under accumulation.
Wednesday’s opening setup.
A retest of Friday’s pre-open high would have a decent chance at extending higher if Wednesday’s open could quickly maintain a recovery above 1425’00. Just surging from Tuesday’s closing level is more likely to be rebuffed. Home Sales is due 30 minutes after the open, a report whose profile is high enough and whose timing is odd enough that trending already underway would be likely to retrace.[/pay]
Trading Plan for 5/6
[pay]Pattern notes.
Monday’s price action was textbook “ineffectual pessimism.” The “pessimism” comes from gapping down, probing lower relative lows, and ranging exclusively in negative territory throughout the day. The “ineffectual” comes from those three pessimistic attributes failing to produce a downtrend – despite filling the gap back to Friday’s close. 
The setup awaits confirmation from a break higher that would unleash the day’s pent-up buying pressure. No break higher, no pent-up selling pressure.
For all of its ineffectuality, Monday’s drop did accomplish what Friday afternoon’s sellers could not, which was to close back under Thursday’s highs. So an opening surge Tuesday would leave behind two pessimistic endeavors, and be even more deserving of a rally to retest Friday’s pre-open high at ESm 1427’00. If the market were going to correct down before retesting Friday’s high, then it should have been obvious by now. Timing windows aside, recoveries rely upon actually recovering.
Indicators and Internals.
MACD & RSI were non-participants Monday afternoon, not indicating strength or weakness, and unfortunately not indicating an inclination towards either. Internal spreads were evenly weighted to indicate the same. Sometimes no decision is a decision. The indecisiveness is in-line with the “ineffectual pessimism” described above.
Tuesday’s opening setup.
Two weekly retail sales glimpses are due before the cash session open. Earnings include several real estate concerns (DHR, FNM, GBE, etc.) whose guidance could play on fears or reinforce confidence. A gap up above 1410’50 would be constructive to a recovery, but momentum reverses up more durably above 1415’00. The pullback meanwhile appears to have used up all the room afforded it so that almost any lower low would target 1397’00, and potentially another 5 or 10 points lower from there. The more time spent not recovering will start making the pattern likelier to probe those lower targets.[/pay]