Market Wrap

The overnight rally ahead of Wednesday’s open had been consolidating around a higher objective at 2673.75 that was made likely by Tuesday’s intraday rally. The open was vulnerable to early strength being reversed early, the same pattern that had been warning us before January of an impending reversal. But the setup never triggered, as the reaction to CPI triggered a 49-point plunge.

A 49-point pre-open plunge is retraced entirely during the session’s first hour. An environment capable of one large leg is capable of multiple large legs, not just one more. So, the afternoon added another 25 points. testing the next higher objective above 2673.75 and 2684.00 and 2698.00-2700.00.

The afternoon bias environment was entered at its renewed bias-up target. A lot of buying pressure had been fulfilled, offering an opportunity for a corrective dip to refuel buyers. The rally didn’t exploit the opportunity. Instead, impatient buying extended the rally.

A similar setup before the close (I describe it at the end of the Market Wrap recording) did the same thing, albeit on a much smaller scale. Size doesn’t matter, only that buyers were still anxious to get long, in a manner that suggests they are weak-handed.

So, an overnight pullback is not only a vulnerability, but a likelihood. Opening Thursday deeply enough could invert Wednesday’s closing WedEX from bullish to bearish. We would then expect trending down into Friday afternoon through Monday morning, perhaps earlier. Otherwise, shallow or no opening weakness Thursday could extend the rally considerably higher 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.

Sunday night’s initial recovery back up to Friday’s 2637.50 high was eventually exceeded by a surge to 2655.00. These are 38.2% and 61.8% extensions of the relevant segments of Friday afternoon’s rally. And their influence continued to suggest the bounce was only a temporary correction.

Reacting down sharply Monday morning from attacking 2655.00 to 2620.00 further suggested that sponsorship was waning. But bias-up held, so the reversal recovered. Its recovery probed fresh session highs, repeatedly. Each time reversing back down to 2655.00 or its current proxy.

Sponsorship still waning. But obviously not prohibitive of probing higher. Ultimately, another fresh high up to 2671.50 was also reversed down to 2655.00, which was still being overlapped at the close despite first probing 9 points under it. Buyers gained no traction, but the pattern is vulnerable to extending either initial strength or weakness.

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

NOTE: THERE IS NO SATURDAY REVIEW THIS WEEKEND. MARKET WRAP WAS EXTENDED FRIDAY TO REVIEW THE BIGGER PICTURE. DROP-IN SUNDAY NIGHT FOR STOCK REQUESTS.

If a tree falls in a forest, does it make a sound? Actually, that’s not relevant here. But the opposite seemed to have happened Friday afternoon. Like Jack’s fabled beanstalk, and perhaps sown from the same magic seeds, an intraday plunge back to sharply lower lows was recovered entirely before the close.

The open’s blip-up to 2618.50 had reversed down nearly 90 points to within 5 ticks of Monday night’s 2529.00 low. The morning’s bias-down influence persisted through the noon hour as Fridays often do. The afternoon bias environment’s target had been tested, and a blip-down under it was reversed up sharply from 2530.25 to the 2590.50 open. Its correction through the position-squaring window recovered to fresh highs attacking 2538.00, 117 points off the low.

So, was disaster averted? Yes, for Friday, but not necessarily for Monday. Any delay in resuming the decline will get every benefit of the doubt for extending the bounce into Tuesday morning. Otherwise, the session’s quasi-Pivot Reversal is often deceptive. The setup identifies extreme sentiment, but Friday’s low stopped optimistically short of touching Monday night’s low. Its intraday trend extreme is always suspicious, and the reversal’s momentum is difficult to maintain through the weekend. And the afternoon bias-down environment’s rally still requires being retraced down to 2558.00.

There’s a lot of upside for even a corrective bounce if Monday doesn’t decline. And if there’s any environment that can bounce hundreds of points in a brief period of time, it’s an environment that is already bouncing (and dropping) hundreds of points in brief periods of time. There’s also a lot of downside, even if only to form a more durable bottom. Retesting the 2529.00-2530.00 lows would target 2509.00-2511.00.

Ironically, Friday’s bounce now offers a lot of room to expend a lot of selling pressure that would have significantly overshot 2509.00-2511.00 to become a more entrenched bear market. A bottom last Tuesday would have been credible. So would a bottom this Tuesday. Or, in case of a bounce Monday, starting the next downleg Tuesday would be credible, too.

• Details and other markets coverage are discussed in the post-market Wrap recording here.
• chaRTroom will re-open Sunday night for Globex.
  

Friday and Monday’s drops did it. Tuesday and Wednesday’s intraday rallies did it. Thursday morning’s two choppy consolidations and their breaks lower did it. And now Thursday afternoon’s last two hours have done it.

Done what? Each of these two sequential setups have expanded their bearish aspects. Their second act — be it an intraday decline, or a rejection of resistance, or distributive range — all measured greater than their first.

Selling pressure is growing, which requires its rejection to avoid capitulation. Rejection is often achieved, by gapping up above a relevant level. This current series seems unable to do that. And Thursday’s two sets extended to sharply lower lows that make it extremely difficult to reject at the next open.

Gapping up sufficiently above a prior high Friday would be credible for reversing the trend up into the close, where Friday Factors could create a bigger rally. Otherwise, those same influences can extend the decline to sharply lower lows into the weekend.

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

Tuesday night’s ranging had resolved up almost immediately from the 2687 open. The morning’s 41-point post-open rally triggered bias-up, and fulfilled its 2722 bias-up target when nearly touching 2727.

Then things changed.

Dipping into the noon hour extended down through the afternoon bias environment entry. That stopped optimistically short of touching the open’s low. Potential for a Wreversal Wednesday lapsed as the balance of the afternoon ranged choppily sideways. More so, the last half-hour was entered by a retest of the afternoon range’s upper-end up to 2710.

Then things changed, again. A lot.

The 3:37 position-squaring window started retracing the afternoon’s last bounce, and then some. The afternoon range’s lows were attacked down to 2688 within 3 minutes of the 2679 cash session close. That 31-point drop extended to 43 points into the 2667 futures settle. The “narrow” ranging at Tuesday night’s 2660 low was retraced by 61.8%. (And 2663 is being touched minutes later.)

Two consecutive sessions have probed back above December’s prior highs. Both failed to close higher, and one attempt was significantly higher before failing by a lot. The most bullish element is the very late origin of Wednesday’s last downleg, so its sponsorship may be weak-handed and more easily rejected. But if Thursday’s open isn’t gapping up to resume the recovery, then it’s probably gapping down and targeting a retest of Monday night’s low down to 2509-2511.

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