Market Wrap
Trading Plan for 3/27
Pattern notes.
Wednesday’s open gapped down. S&Ps trended down, and the entire session was spent in negative territory. That’s a lot of pessimism, but the pessimism might be proved ineffectual because instead of extending any of the intraday breaks under Tuesday’s low, Wednesday’s cash session close was still testing it. S&P futures dropped nearly 8 points after the close on ORCL’s so-called “earnings,” and it won’t be very bullish to repeat the behavior during regular trading hours. So a complete retracement of the post-close drop is a prerequisite to any credible recovery attempt.
That’s not going to be easy, but it’s not impossible. So far, the post-close low has stopped at Monday’s post-open low around ESm 1335’00. As I’ve noted this week in the charting room, that can be surprisingly strong support, preventing lower lows from actually filling the gap back to Thursday’s close. Also, the drop under Wednesday’s cash session lows originated before the Globex open, so its “new trend extreme” wouldn’t require a cash session retest if recovered by the cash session open. And except for prices dropping, the decline hasn’t yet produced new selling pressure or trending.
But don’t confuse this analysis with cheerleading for a bull market. I consider the current drop to be refueling for the last upleg of a correction to the bigger decline. The pattern would make more sense to probe one more higher high around 1365’00-1370’00. I’ll still honor any sell signal, but I’ll also keep their stops tight.
Indicators and internals.
Internals were another potentially bullish factor: Despite 2.2x more NYSE down volume than up volume, declining issues weren’t even 1.5x advancers. This ratio obligates Thursday’s market to reward Wednesday’s buyers for their relative productivity. That can be only temporary, and it can be negated by gapping down under the cash session low (which is already indicated by Globex price action, so that seems like a circular argument). But it does still reflect the narrow focus of Wednesday’s selling pressure.
Thursday’s opening setup.
A gap up above ESm 1341’75 would be a very strong indication that the pullback had ended and that momentum had reversed up. Above 1345’00 would be ideal. Any higher, like up to or above 1349’00, would risk expending too much buying energy instead of attracting new buyers. Further weakness can either drip down to last Thursday’s 1331’00 highs, possibly (but probably not) 1325’00, and then retrace all of Wednesday’s loss. A gap down to 1331’00 would instead form the basis of an Island Top from the past three sessions, and that would be very bearish.
Trading Plan for 3/25
Pattern notes.
The premise to yesterday afternoon’s decline is that it was not trending or a new downleg, but simply a pullback or noise within the range. The argument for this is that prices only eked their way lower, and only back to prior lows of a consolidation that had yet to really break higher. The result was to create pent-up buying pressure, some of which escaped when S&Ps popped-up several points right after the cash session close. More of that pressure was released several hours later when the bounce had extended to 8-1/2 points.
The premise would be rejected if Tuesday’s open were to maintain a gap under Monday’s last-minute low around ESm 1349’00. So it is interesting that S&Ps have eventually retraced the entire recovery and just touched 1348’00. So either the recovery plans have been scuttled, or else the buying pressure has become pent-up again. Back above 1350’25 would signal that buying pressure was being released again, confirmed above 1353’00. Until confirmation, a corrective drop targeting 1341’00 could still develop.
Indicators and internals.
MACD & RSI had improved into Monday’s last-minute low, but the overnight bounce has already fulfilled this setup. Technicals are improving again as S&Ps make new lows overnight, but not yet diverging positively among several time intervals. Yesterday’s internals were bullish. The ratio of NYSE up volume to down volume was less than 4:1, but the ratio of advancing to declining issues was about 4-1/2:1. The session itself did gain ground, which mitigates the obligation for Tuesday’s session to reward Monday’s buyers for their relative productivity, a reward that might have been delivered already overnight.
Tuesday’s opening setup.
One econ report is due Tuesday, Consumer Confidence at 10:00am ET. The timing tends either to accelerate or to reverse any initial trending, but that probably won’t be of much help if S&Ps had not yet recovered from gapping down under 1349’00, but the timing could make or break a recovery attempt’s test of confirmation. While a recovery attempt would be signaled underway back above 1350’25, that might also be an appropriate stop for shorting a gap down.
Trading Plan for 3/24
[pay]Pattern notes.
Before Thursday’s session retraced all of Wednesday’s loss, it needed to recover from probing negative territory, and that was after its open had gapped up. Oh, and that was after having recovered from even lower lows overnight. I warned one week ago in this space about weird price action due to Thursday’s odd timing for a quadruple-witch expiration, combined with the impending three-day weekend. And yet I still feel surprised by how relentlessly these factors influenced – I should say “destroyed” – normal timing windows.
Thursday’s rally rejected or ignored nearly every MACD & RSI setup except for two, and their profits depended upon adjusted stops, which triggered long before trending could get underway. The rally peaked upon testing Tuesday’s close around ESm 1332’00-1333’00, retracing all of Wednesday’s loss. Wednesday’s high was about 11 points higher at ESm 1343’50, and it was never attacked, but it will probably be probed Monday if the open isn’t obviously intent upon retracing (and ultimately rejecting) Thursday’s rally. And since the rally ended in a last-hour double top, the rally’s continuation should itself be obvious by gapping up above Thursday’s highs.
Indicators and internals.
MACD & RSI diverged negatively into Thursday’s last-hour double top. The cash session hasn’t confirmed the signal, but it probably will unless Monday’s open were to gap up above the double top. Internal spreads were evenly weighted between up and down volume vs. advancing and declining issues. Total volume was huge due to expiration, but a little light when that extraordinary activity is deducted. Regardless, there is no obligation to reward either buyers or sellers for any outperformance.
Monday’s opening setup.
S&P futures dropped 9 points after the cash session close, which had ended back at session highs. There is a tendency to fill these vacuums, which is bullish for a higher open Monday. It also makes a lower open bearish. The cash session close equated to ESm 1332’00, but a bullish open should gap up to or through 1334’00. Meanwhile the pullback’s low at 1323’50-1324’50 will try to limit opening weakness, but its break through a relevant timing window could quickly retrace the day’s gains.[/pay]
Trading Plan for 3/20
[pay]There’s probably more than a one-day slide required as the consequence for Wednesday’s rejection of its opening probe to new recovery highs. Closing under ESm 1307’00-1308’00 kept alive this downleg’s momentum, and that remains valid for Thursday’s open. The bounce limit would become 1288’00-1290’00 if Thursday’s open were to gap down to 1285’00.
Jobless Claims is at 8:30, and then LEI at 10:00, timing that tends often either to accelerate or to reverse any initial trending underway. Quadruple-witch expiration, one day earlier than normal, and the impending three-day illiquidity, should make this an interesting session.
Above the market there is no unfinished business, only a massive question mark after two days of ranging well above the Monday’s highs. If Thursday’s session can avoid any deeper dip, next week could extend the bounce sharply higher. In other words, Thursday might be the last chance for sellers to retake control for a bigger downleg. If they succeed, the bigger downleg would target ESm 1248’50 and 1231’50 before having a chance to bottom.[/pay]
Trading Plan for 3/19: React
S&Ps eventually probed a little higher overnight, but only up to ESm 1337’25 and only briefly before turning down to 1321’25. MACD & RSI improved into the lows, even diverging positively among some time frames. But the pattern suggests that the technicals will help to recover from a lower low, and not prevent it.
The bias-down signal was broken and its target is 1317’00, which might be 1 point too low considering measurements that developed overnight. I expect technicals to confirm bottoming and I’ll monitor for it, so long as bounces don’t exceed 1326’50 which would target 1333’50.
Only one piece of econ data is due today, Crude Inventories at 10:30. The overnight high is above yesterday’s range so it should be retested during regular trading hours. I won’t start expecting a sustainable drop unless 1315’50 were to break as support.