Market Wrap

Thursday’s bias environment exit disagrees that the bearish distribution template remains intact. Reversing multiple pre-open and intraday bounces back to relevant levels was even confirmed by the noon hour’s fresh post-open lows. But the afternoon bias environment exit was influenced by a giant sucking sound to the north, reacting to news of Nafta partners being exempted from the tariffs.

The 45-minute rally from 2727.75 probed fresh highs up to 2740.50. Then it was right back down 2727.75. Bearish distribution template remains intact.

Monday night’s 2734.50 prior high was being tested at 3 minutes before the cash session close. That was on the way to the cash session closing at 2739.00. Recovering during the press conference — let alone just ahead of the next morning’s Employment Situation report — isn’t much more meaningful than noise. Regardless, not already trending down at Friday’s open will likely extend up to 2753.00 or 2765.00.

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Was that a Wednesday Wreversal? They don’t start from extreme gaps, so no, although the three distinct legs would qualify otherwise. The setup doesn’t correlate at all to one trend’s direction or to another’s resolution. But it does reflect growing volatility, so be prepared.

Wednesday’s session was also interesting for invalidating its afternoon bias-down. Recovering 2708.00 was too late to avoid triggering, but its recovery was well-rewarded by reversing up 22 points to 2730.00. Also remarkable for having absorbed the original reaction to Gary Cohn’s resignation.

Meanwhile, Wednesday closed back in the 2725.25-2727.75 corrective bounce limit, which had also held Monday’s high and defined Tuesday’s close. So, the bearish templates are limited again to either rejecting probes of fresh highs before reversing down sharply, or else already collapsing through the open. Extending higher or trending down substantially will be difficult on the day before Friday’s pre-open Employment Situation report. But extending fresh highs Thursday morning would start making fresh highs at 2753.00 or 2765.00 likelier.

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Tuesday’s bearish template was to probe above Monday’s highs and reverse into negative territory. It was likelier to develop during the morning, instead of during the afternoon. It actually developed before the open. That is, Monday’s highs were probed overnight, and negative territory was probed through the bias environment lapsing.

Then came the knee-jerk reaction to news. A headline seeming to mute the dreaded tariff toll triggered a 15-point rally to 2730.00 by noon. That was already within 3 points of the afternoon bias-up target, so it didn’t become “unfinished business above” despite not being touched.

Bias-up wasn’t rejected, either. Knee-jerk reactions to new headlines usually are retraced entirely, eventually. And the noon hour’s surge seemed on its way to being retraced. But that was cut short by another headline touting Trump’s impending appearance. Instead of resuming the decline, the bias environment’s 2723.00-2730.00 range persisted through the close.

The same template governing Tuesday’s open is in-play again Wednesday. If not already trending down at the open, then failed probes of fresh highs should be viewed as distribution, and likely to resolve down. But it’s possible that having blind-sided Tuesday’s attempt to reverse the failed probe, not resolving down Wednesday could extend the rally to 2753.00 or 2765.00.

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Monday afternoon’s 2726.50 bias-up target was met by new highs into the final hour. Overbought RSIs helped a reaction down to 2720.00 to recover back to the high. And slightly higher, to 2727.75. RSIs were no long overbought on the retest, and price drifted back down to close under 2720.00. Monday’s close is essentially at equilibrium.

Recall from this weekend’s Saturday Review that 2725.25-2727.75 is the projected peak of a corrective bounce. Exceeding it through any relevant timing window would suggest something more substantial to the upside underway. Otherwise, if the correction from Friday’s low is done, then it should resolve down without much delay.

If/When sellers do retake control, they’ll likely be overwhelmingly focused on retracing the entire bounce as quickly as possible. So, any credible reversal down is unlikely to begin late in the session when it’s more difficult to attract sponsorship.

Resolving down without much delay should also be done without much confusion. Save for an initial stage that starts and stops, backing-and-filling up to Monday’s close, aggressive selling should be obvious into or out of Tuesday’s noon hour. Tuesday morning could be spent probing positive territory up to 2736.00 trying to extend Monday’s rally, and still be vulnerable to peaking.

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Having conditioned the morning crowd not to buy, Pavlov may be on to something more sinister by leaving the cage door open to buy in the afternoon. One headline I saw, which I try not to see lest they be an influence, called Friday a “massive short-squeeze.” I don’t dispute that Friday’s ultimate resolution was up. But Friday’s similarity to a short-squeeze pretty much begins and ends there.

Ranging 47 points from low-to-high is wide, but less than 25% of it was in positive territory. And that was thanks to the last half-hour’s breakout to fresh session highs, after having fluctuated around unchanged since noon.

Now, it’s true that I did label that late breakout as a sort of short-squeeze, but certainly not the entire session. And then, only to label its sponsorship as being earlier shorts that were reducing exposure into the weekend’s illquidity. Their catalyst is a Friday Factor, and I’m not sure any other day of the week would have been motivated to end the day trending away from unchanged.

So, Friday’s late breakout originated too late to be reliable for extending higher. And avoiding a fourth consecutive intraday downtrend doesn’t prevent resuming them out of the weekend. .

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