Market Wrap
Trading Plan for 4/21
[pay]Pattern notes.
Friday’s last 60-90 minutes were spent ranging around the open’s ESm 1391’50 print.That’s relevant because it represents no net improvement on the day, despite having gapped up and then spending the entire session in positive territory. Sound familiar? This “ineffectual optimism” is the inverse of Thursday’s ineffectual pessimism. It should be noted that these setups are inverse to each other – they are similar and not opposites. When similar setups appear consecutively, the reactions are likely to be different. A gap down would still be credible, but it can’t be positioned for ahead of time.
After firming into Friday’s cash session close, price only slid afterwards. Price had only slid after the cash session’s open. When the week’s last post-open and post-close price action mirror each other, the “Friday Factor” expects the next week’s opening price action to mirror this week-ending price action. So whether Monday’s session opens flat or gaps in either direction, within several ticks it should start sliding. Put another way, sliding would be credible if it developed within several ticks of Monday’s open; a slide might not happen at all if it doesn’t develop within several ticks of the open.
A “Gotcha!” setup would form if Monday’s response to Friday’s new trend high was to close back under the prior high close – but that’s about 20 points lower, and the setup is more reliable when the new high and its rejection occur in the same session. A gap down would essentially form an Island, relative to the prior high but not relative to the prior two months’ highs. The market can face selling pressure for a couple of days, but a trend reversal might not be possible without gapping down sharply and failing to recover by Tuesday’s open.
Indicators and Internals.
Internal spreads were wide again, which mooted by the session’s gain, but sellers were more productive than buyers and that has yet to be rewarded. MACD & RSI were mixed to lower, and diverged negatively among shorter intervals.
Monday’s opening setup.
The only thing a rally has in its favor Monday is that this has been the market’s opinion lately. That one factor doesn’t trump any others, but it can outweigh them. The mindset can change either over time by forming a multi-session distribution pattern, or else by the immediate paradigm shift of gapping down sharply. The latter scenario has everything going for it, so not gapping down would mean any intraday weakness was likely to recover.
A 17-20 point decline that tests Thursday’s highs as support would be potentially bullish because its recovery wouldn’t be weighed down by unfinished business. A 17-20 point gap down would be potentially bearish because the resulting pattern would be as if Friday’s gap up had never happened[/pay]
Trading Plan for 4/18
[pay]Pattern notes.
Thursday afternoon’s bias-up target wasn’t met until very late at the ESm 1370’50 high. The session settled back under the morning’s high to indicate there was no accumulation. The session was still interpreted as “ineffectual pessimism” that made higher highs likely, but the higher highs weren’t likely to be maintained.
The post-close surge had peaked at 1376’25 in an emotional extreme requiring a retest, which finally resolved after ranging sideways all night. At this point, since the surge had originated after Thursday’s cash session close, a drop would have been allowed and it would not have required a recovery. But a combination of strong earnings from Caterpillar and no negative surprise from Citi sparked a 15-point surge to 1390’00.
The potential for an opening drop hasn’t changed – only the level of its origination. Its consequence is much less likely to extend into a new downleg. More likely is that the balance of the day would be an exercise in working its way back to overnight highs. In case of no opening drop, the next higher high – and the highest calculable higher high – is 1394’00.
Indicators and Internals.
MACD & RSI began deteriorating about halfway into the 15-point surge, and then diverged negatively while consolidating under 1390’00 for the past 90 minutes. Thursday’s internals also diverged negatively with more up volume than down volume producing fewer advancing issues than decliners. The actual spreads were narrow either way, but it certainly wasn’t accumulative. Even more relevant is the contrast between this morning’s surge and the very recent indecision.
Friday’s opening setup.
There are no econ reports due today, and high-profile earnings reports are finished for the day, too. Back under ESm 1385’25 would target 1374’00. That’s still above yesterday’s highs and still likely to try recovering back to overnight highs. But any lower would target deep into yesterday’s range, and then start increasing the vulnerability to an afternoon dive.[/pay]
Trading Plan for 4/17
[pay]Pattern notes.
Wednesday’s session-long rally started by gapping up above sharply. Thanks to strength after the cash session close, Thursday’s open is more likely than not to gap, too. S&Ps added more than 6 points before the Globex open, surging from the ESm 1365’00 area to above 1371’00 in reaction to IBM’s earnings. Because of the surge’s timing its “new Globex trend extreme” is less likely to be retested during the next cash session. And the overnight high’s eventual retest would more likely hold.
Indicators and Internals.
Internal spreads were evenly weighted at better than 5 times more NYSE up volume and advancing issues than their counterparts, down volume and decliners. Wide spreads, to be sure, but that’s the only assurance of there being follow-through buying. There was no outperformance by buyers or sellers that otherwise would require being rewarded. Usually the next day’s price action tends to reflect a genuine opinion, and not a reaction, so therefore more predictive.
Thursday’s opening setup.
Thursday’s open is likely to be at Wednesday’s cash session close where an immediate bounce would recover back to overnight highs – currently 1372’25 – or else any delay would more likely sink back to the 1356’00 area. There is room down to 1363’00 without sellers gaining too much traction, but under 1361’50 through a relevant timing window would turn the market too defensive to much remember the prior day’s excitement. The more volatile the pullback, the more its leadership is changing hands, and the more likely for it to resume into the weekend. A steadier controlled retracement would only ensure retesting Wednesday night’s highs, while making a break higher more difficult.[/pay]
Trading Plan for 4/16
[pay]Pattern notes.
Tuesday’s failed opening surge did manage to fulfill buying pressure that was identified Monday as targeting ESm 1338’50. And Tuesday’s low did deliver the required retest of Monday’s pre-open low at 1325’75. These two pieces of information can be used to construct a bullish case: 1) the low fulfilled selling pressure, and 2) the high’s afternoon recovery created new buying pressure.
Therefore, a rally would be free to unfold since selling pressure has been fulfilled. And the afternoon’s recovery suggests that rally is unfolding because the morning’s surge had already satisfied that area’s buying pressure, so there was no other reason to revisit it except to start trending up.
My problem with the first data point is that the afternoon recovery peaked nearly 1-point short of 1338’50. S&Ps did gap up to 1344’00 after the close in reaction to INTC’s earnings comments. A one-hour old dip just touched Tuesday afternoon’s high as support. While that leaves outstanding a overnight high that will try attracting price higher, the 100% pullback does underscore that the overnight reaction is not yet a breakout.
My problem with the second data point is that other patterns Monday had indicated the retest of its pre-open low would include filling the gap back to March 31’s 1321’75 close. So there might still be unfinished business at lower levels, after all. Despite retracing the post-close gap up, it’s too early to know whether today’s session will try to satisfy the lower target. By the same token, despite the post-close gap up, it is entirely too soon to say a rally has begun. And considering Tuesday morning’s string of unrequited buy setups, the potential for a meltdown would only increase if the post-close INTC reaction were rejected.
Indicators and Internals.
Volume accompanying Tuesday’s alleged reversal was relatively heavy, but not dramatically. Certainly not so much as to indicate the post-close gap up was an opinion shift, instead of a reaction to an earnings surprise. Internal spreads weren’t very wide despite the afternoon’s 13-point rally, a contradiction that is magnified when considering the post-close reaction. Since total volume did increase, Wednesday’s session is obligated to reward Tuesday’s sellers for their relative productivity.
Wednesday’s opening setup.
Overnight price action never extended Tuesday’s post-clos gap up. In fact, twelve hours of ranging sideways has finally dipped back under Tuesday morning’s high, which doesn’t exactly smack of a runaway rally unfolding. The move could simply refuel buyers for a retest of overnight highs. But that retest would need to maintain a recovery above 1343’00 before improving the argument that a rally might be underway. Otherwise, the overnight high’s retest – let alone a rally – would likely put off indefinitely by failing to recover from a dip under 1336’00.[/pay]
Gang aft agley (Trading Plan for 4/15)
[pay]Monday afternoon’s low probed the morning’s low by 1 tick down to ESm 1327’25, but half of the 4-1/2 point bounce from there was returned into the cash session close. The 1325’75 overnight low is still very likely to be retested before any sustained rally can get underway, and the gap back to March 31’s 1321’75 close is likely to be filled in the process.
Gapping down at Tuesday’s open might prevent sellers from gaining traction, while fulfilling the selling pressure’s target – a great formula to trigger a rally. The rally wouldn’t be durable, but its slope and degree would make it seem that way. Meanwhile, overnight price action might instead firm up to the 1333’25 or 1335’00 area in sympathy with a relief rally among Asian markets for U.S. stocks not having extended Friday’s decline. Several banks announce earnings very early Tuesday, and then CPI is due at 8:30am ET.
Best-laid plans aside, gapping or sliding down does carry the risk of inviting a new breed of seller. And at this stage it would be a truly disgusted seller motivated by asset allocation. That sort of selling can get out of hand fast, as it is less likely to be concerned with big price drops between the open and mid-morning. So the most appropriate buy signal in case of opening weakness is to at least recover above Sunday night’s 1325’75 low, and then quickly back above Monday’s 1328’00 area lows.
I’ll provide long-entry parameters to buy into strength if the overnight price action suggests that’s its next move, instead.[/pay]