Market Wrap

Thursday’s decline closed under 2701.50. Its test and retest as support last week had held to require retracing its pullback from 2755.00. And that had extended through Tuesday’s open to 2790.00. There was no bullish reason to revisit 2701.50, but also no more likely of a bearish resolution until closing under it. Which Thursday did.

Three consecutive sessions have trended down throughout since Monday’s session had rallied throughout. Each of those ultimately bearish sessions included an early rally effort. So, none of the intraday drops qualifies as capitulation. So, has Pavlovian conditioning made buyers reluctant to try, try, try again Friday?

Meanwhile, two days of impending illiquidity creates the influences that are my Friday Factors. Those influences make Friday vulnerable to capitulating, which would have bearish implications for Monday. Gapping up Friday above 2701.50 could help to delay extending this downleg, but even that wouldn’t marginalize the threat of sellers for the day.

• Details and other markets coverage are discussed in the post-market Wrap recording here.
• Monitor overnight Globex trading in the chaRTroom here.

The Fed chair’s two-day congressional testimony used to be consecutive days. And the second day was reliable for reacting differently than the first, as the first day’s comments were already discounted or walked back. Without immediately walking back Tuesday’s surprisingly hawkish comments, did Wednesday’s pause give Tuesday’s drop an opening to extend?

Monday’s rally had become excessive optimism, silliness ahead of the new Fed chair’s first congressional testimony. Tuesday’s outside day proved that, ending under Monday’s low. Leaving the question for Wednesday, whether it would essentially range sideways while awaiting Thursday’s second day of testimony. Overnight action tested fresh lows but recovered enough to form the basis for an Isolation setup. And the morning’s bias-up signal triggered.

That’s a lot of bullish potential. So much so, that I warned overwhelming it must be done by substantially stronger-handed sellers. It was undone by much stronger-handed sellers.

Peaking 2 points short of the morning’s 2764.00 bias-up target was reversed to probed 1 point under the 2738.50 overnight low. The afternoon’s rally peaked upon probing 6 ticks above its 2757.00 bias-up target, then plunged 47 points through the close. And the close easily probed under 2729.00 “lower prior highs” down to 2712.00.

Is the 1987-style crash template playing out? Inflecting down instead of up wasn’t necessary, but inflecting down, it is. Crashing instead of only probing prior lows isn’t necessary, but the minimum 2509.00-2511.00 objective will seem that way. Perhaps the only chance to avoid falling over the edge is to rally early Thursday, and to rally sharply. A shallower bounce would remain highly vulnerable to trending down into and out of the weekend.

• Details and other markets coverage are discussed in the post-market Wrap recording here.
• Monitor overnight Globex trading in the chaRTroom here.

Optimism ahead of the new Fed Chair’s first ever congressional testimony proved to have been discounted already. Monday and Tuesday’s sessions bookend-ed each other, one trending up and the other trending down. They even shared similar characteristics:

Monday’s 2759.50 open was reversed temporarily by the first hour’s dip back down to 2753.00 before rallying sharply to 2795.00 through its close. Tuesday’s 2782.00 open was reversed temporarily by the first hour’s surge up to 2790.00 before sliding sharply to 2743.00 through its close. Both sessions even tried to trigger a very late and unreliable reversal signal, only to extend the intraday trend.

Inverse characteristics are also similar characteristics. If both sessions are influenced by the same sponsorship, then Tuesday’s trending attempt won’t extend the next day, either. Which would make Wednesday more likely to range — albeit a wide range, but without a directional resolution.

How will we know, as early as possible? Since 2743.00 was the next “lower prior high” and its test held, opening Wednesday back above 2753.25 and 2757.00 would be increasingly likely to have absorbed Tuesday’s drop. Back above 2766.00 and 2771.50 would help to confirm. An attack on Monday-Tuesday highs wouldn’t be required, but likely. Otherwise, not already recovering through the open would be vulnerable to extending Tuesday’s drop sharply and deeply, potentially fulfilling the 1987-crash style template.

• Details and other markets coverage are discussed in the post-market Wrap recording here.
• Monitor overnight Globex trading in the chaRTroom here.

Monday afternoon’s 2774.00 bias-up target was probed by nearly 2 points before the the bias environment began lapsing. Its reaction down tested a sell signal down to 2669.50 but never triggered it before bouncing back to 2774.00 as the bias environment lapsed. Its bounce extended higher to trigger yet another upleg that tested 2780.00. Then rinse and repeat: Another reaction down held 2774.00 before another upleg surged to 2785.00 through the cash session close.

That’s pretty optimistic for being just hours away from the new Fed chair’s first congressional testimony. If the market hears what it wants on Tuesday, then a repeat of Monday’s rally could easily fulfill the 2813.00 and 2825.25-2827.75 targets.

Regardless, mind the analog to the 1987-style crash template. Its price pattern is busted, but its timing is relatively intact. Tue-Wed is the timing for its last bounce to peak, which may be a metaphor for “rounding third base.” Also note that the template identifies an inflection point, which in 1987 inflected down sharply. The same template could still be fulfilled by reversing down sharply, but not as substantially. The inflection point can also steepen the rally’s slope instead of reversing it.

• Details and other markets coverage are discussed in the post-market Wrap recording here.
• Monitor overnight Globex trading in the chaRTroom here.

Friday Factors didn’t influence the open’s gap up to 2718.00, not to extend higher or to reverse down. The morning eventually recovered to exit the bias environment above its 2721.00 bias-up target. It had held a test when exceeding it would have renewed the bias-up signal, so exceeding it later at least kept alive upside potential. It was extended to 2729.75.

That was the afternoon’s bias-up signal. Its reaction down attacked 2721.00 into the afternoon bias environment. The bias environment recovered back up to its 2729.75 bias-up signal. And then Friday Factors reappeared.

Trending ahead of the bias environment exit formed a setup that would be completed by trending during the bias environment exit. And that trending was up, defining the balance of the session. Closing less than 90 minutes later was almost 20 points higher attacking 2750.00. Being above Thursday’s high essentially confirms the Isolation setup is intact, and that a retest of the prior Friday’s 2755.00 high is in-play.

• Details and other markets coverage are discussed in the post-market Wrap recording here.
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