Market Wrap
Trading Plan for 4/28
[pay]Pattern notes.
S&Ps closed Friday higher than any print since January’s last downleg got underway, and finally higher than each recovery attempt since then. The nearby chart is of S&P cash (not futures), and shows the path I traced out as February was ending. This is the template for a durable, long-term bottom. The lower low and its rejection played out pretty much on schedule. 
But note the last leg’s predicted trajectory. It isn’t precise, but it’s not arbitrary, and the recovery may have taken too long compared to the time between the two lows.
Basing is one thing, but S&Ps have been rallying since March’s low. And the prior high is about to be exceeded by as much margin as there was at the prior low. That has already started bringing optimism to extreme levels. The corrective targets have been long-standing at ESm 1410’00-1415’00 and potentially 1445’00. A competing interpretation appeared recently, either targeting 1425’00 or else a rejection of the next intraday rally attempt. Regardless, this is a critical juncture, with longer-term implications, and a resolution that should be known fairly soon.
Indicators and Internals.
115% more NYSE up volume than down volume Friday produced only 70% more advancing issues than decliners. Monday’s market is obligated to reward Friday’s sellers for their relative productivity, whether by dipping initially or by rejecting an early gain. Either one seems plausible considering that MACD & RSI diverged negatively on a very last-minute retest of the last hour’s high. A Sunday night dip wouldn’t qualify as providing that reward, regardless of whether there were a recovery into the cash session open.
Monday’s opening setup.
Wednesday afternoon’s FOMC interest rate decision probably won’t start influencing price action until Tuesday. Normally it wouldn’t start until Wednesday morning, but this one is perhaps the most controversial in months – if not in years. Reaction to econ reports before then could be exacerbated as it is interpreted one way or another for swaying the FOMC decision, but no reports are due until Tuesday. The FOMC focus might also mute Friday’s reaction the Employment report. Meanwhile, there is room down about 5 points from Friday’s close to ESm 1392’50 to refuel buyers. Two points lower than that and sellers would start gaining traction for something more dramatic down to 1377’50 and then potentially much, much further.[/pay]
Programming note.
Join me in the charting room after Thursday’s close for a live webinar presentation of “Basic Skills: Reading MACD & RSI.” It is a somewhat updated version of one we had on the same topic February. This one will be recorded, and then followed by others in an ongoing series. Passwords will not be required, so you are welcome to invite any others to attend.
Trading Plan for 4/25
[pay]Pattern notes.
Despite Thursday’s noon hour problems that included afternoon bias window having rejected the noon hour’s higher highs, S&Ps recovered to probe last Friday’s highs. And because of those same problems, the higher highs ranged narrowly for an hour incapable of pushing higher. This base wasn’t capable of supporting a breakout, so the highs pushed back. S&P dropped 10 points from ESm 1399’25 into the cash session close, and fell another 6 points to 1383’00 into and out of the Globex open.
The story since then has been quite different. After a couple of false starts through midnight, S&Ps have rallied 11 points to touch 1394’00. The level represents a 61.8% retracement of the range between Thursday’s noon hour high and its bias window retest. The timing of these highs was critical, as well as their combined rejection, had formed an unstable base responsible for dooming the afternoon’s higher high.
An immediate recovery through yesterday’s noon hour highs would indicate that their bearish influence had been absorbed, making new highs likely. But if the overnight bounce does fail, then overnight lows would be the first logical attraction to falling prices.
Indicators and Internals.
MACD & RSI had deteriorated and ultimately diverged negatively during the formation of Thursday’s failed noon hour highs. The initial consequence was only a 6-point pullback, supported by momentum remaining from the morning’s surge and from optimism ahead MSFT’s earnings. Technicals speak louder and their base was unstable, so higher highs were doomed to failure. The overnight rally never produced divergent readings, but RSI hasn’t become overbought at any time, which questions the rally’s credibility.
Friday’s opening setup.
If it hasn’t already done so, the bounce should at least start peaking at ESm 1394’00, which has already been touched. Back under 1391’75 would target 1384’25, a 61.8% retracement of the consolidation at overnight lows. The 1383’00 overnight low wasn’t a new trend extreme so it doesn’t require being retested, but touching it would make the drop likely to continue. The overnight gains can still be exploited to resume yesterday’s rally, by essentially gapping up to or above 1395’50 to reject the drop from yesterday’s noon hour highs. Any less strength would be suspicious.[/pay]
Trading Plan for 4/24
[pay]Pattern notes.
Wednesday’s reaction to AMZN and AAPL earnings was a little positive. And that made it very negative. A short-squeeze had just been retraced before the close, so the muted response soon began repelling buyers and attracting sellers. S&Ps fell 10 points to retest cash session lows under ESm 1372’00, and retested them several hours later after bouncing 5 points in the interim. Yet another, bigger bounce was also retraced back to the lows where (wait for it…) S&Ps have bounced again. Hmmm, there seems to be some sort of pattern here.
Of course, I think the overnight lows will be re-re-retested. More to the point, the lows will be broken sooner or later. It is curious that all three overnight lows came within 1 point of touching Tuesday’s lows, but none could actually complete the task. That’s optimism, and/or impatient buyers, nonetheless ineffectual judging by their repeated failures. So I don’t expect Tuesday’s lows to offer much support if/when they finally are tested. The opinion isn’t new, there’s just more evidence supporting it.
Indicators and Internals.
If there were any reason to doubt the market’s bearishness, it would be Wednesday’s internal spreads. Despite NYSE down volume outpacing up volume, advancing issues outnumbered decliners. Internals diverged negatively from each other, accompanied by rising volume. That would be outright bullish if S&Ps had declined on the day, but the cash index finished with a gain, so any obligation to reward buyers for their relative performance might be satisfied by an early bounce.
Thursday’s opening setup.
Durable Goods and Jobless Claims are due at 8:30 ET, along with quite a few earnings announcements including MMM and F. The 10:00 timing of New Home Sales coming 30 minutes after the open tends to accelerate or reverse any initial trending underway. If afternoon price action becomes range-bound again then this time we can blame it on anxiousness ahead of MSFT earnings due after the close. But I suspect the market may step outside of its comfort zone this time.[/pay]
Trading Plan for 4/23
[pay]Pattern notes.
Tuesday’s gap down removed from consideration the potential Island pattern. Too bad for bulls. This particular Island would have triggered a correction, but not enough selling pressure to trigger a new downleg. The correction would have been recoverable and the Island itself would have required at least a retest.
Not that no other potentially bullish pattern exists, but the only one that doesn’t require gapping up above ESm 1389’00 would instead require an almost immediate and relentless rally to begin. Tuesday’s lows provided a good launching pad, having held two tests of both Wednesday and Thursday’s closes to form a Double Bottom. But the last-hour rally already fulfilled a lot of its buying pressure to make a strong gap up less likely. Indeed, overnight strength has only edged higher to 1386’75.
Even if Tuesday’s drop did complete a pullback’s low, it was too shallow to refuel buyers for much more than an attack on Friday’s highs. A drop to 1375’00-1376’00 would allow another rally attempt but it wouldn’t compensate for the shallowness. Meanwhile sellers would have an opportunity to gain traction, especially since buyers didn’t really gain traction from Tuesday’s last-hour rally that stopped short of closing above any prior session’s lows.
Indicators and Internals.
Tuesday’s internal spreads were negative, but the ratio of up volume to down volume was equal to the ratio of advancing and declining issues it produced. Wednesday’s market isn’t obligated to reward either buyers or sellers for any relative productivity. That helps to account for the lack of much net gain overnight despite the volatility.
Wednesday’s opening setup.
MACD & RSI would become very important to consider if there were an early drop to 1375’00-1376’00 to give a rally a second chance. Even then, a reaction there could still easily be only a temporary bounce on the way to resuming Tuesday’s decline. If Tuesday’s last-hour rally tries to extend higher without first refueling, then it will need to maintain a gap up above Friday’s 1385’00 low. That’s actually being probed already, but not yet with any pattern that suggests it will extend higher. The econ calendar is light, but the earnings calendar is heavy.[/pay]
Trading Plan for 4/22
[pay]Pattern notes.
Monday’s open was vulnerable to gapping down and forming an Island of Friday’s price action. The gap down didn’t clear Friday morning’s low and an Island pattern was averted. At least, a one-day Island. An Island is still possible if Tuesday’s open gaps down about 14 points to test Thursday’s highs. That’s smaller than Friday’s gap up, but still a tall order. Gapping down under ESm 1386’00 would likely slide another 4 points to attack Monday’s lows. Gapping down to attack Monday’s lows under 1382’25 could attract sellers capable of producing a slide back to Thursday’s highs.
Indicators and Internals.
Confuscious say… no decision is decision. In that vain, low volume sessions can also be revealing. For instance, Monday’s volume shrank considerably compared to Friday’s pace. While that would be appropriate during any consolidation, the sudden disinterest doesn’t help to confirm Friday’s strength, and it doesn’t make Monday’s recovery from lower lows very impressive. It also undermines the relevance of Monday’s internal spreads, which were more negative than the price loss, so the price outperformance is also less impressive.
Tuesday’s opening setup.
Overnight lows have already probed 1382’25 which I had originally thought might be so deep that it would attract more buyers than sellers. Perhaps initially, but a limp bounce would call sellers from far and wide. Currently, overnight weakness indicates a gap under 1386’00, with five hours before the open. Unless 1389’00 maintains a recovery by then to put buyers in control for the morning, some sort of decline will likely be attempted. There is little news today except for the ongoing quarterly earnings onslaught. Home Sales is due 30 minutes after the open at 10:00am ET, timing that tends to reverse or accelerate any initial trending attempt underway.