Market Wrap

Woulda, coulda, shoulda. Tuesday afternoon’s bias environment was exited at 2625.00, the low of a 41-point drop from the noon hour’s high. But it was above the morning bias environment’s low, so not gaining traction. And that was the window where trending was likely to begin. Which it did, triggering a modest 75-point short squeeze up to 2693.00 and 2700.00.

After Monday’s close I described the template for a a substantial afternoon short-squeeze, but it required the morning to contain some scariness. But the open only probed lower, which didn’t fit the definition, not like the overnight plunge. Perhaps the overnight plunge WAS the template’s morning scariness element. Even then, the afternoon short-squeeze should have been more substantial from the refueling.

A more substantial short-squeeze than 75 points? Relative to what it was retracing, yes. Tuesday’s late high only tested Monday’s late high, the last bounce prior to sliding 170 points to the overnight low. That’s no small feat, and neither is its complete recovery — in any time frame. So, a lot of buying pressure was expended only to retrace a drop, and not to close above it. Even December’s prior high held its retest as resistance. That doesn’t marginalize sellers.

What would marginalize sellers? Maintaining a gap up Wednesday. At least above 2722.00, if not also above 2732.00. The reward would be a bigger bounce to 2784.00 or 2793.00. Anything shallower, not maintained or delayed would remain vulnerable to probing under Tuesday’s 2620.00 post-open lows, and potentially new lows for the move.

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

Well, that was certainly historic. The Dow down 1177 points, S&Ps down 113 points. Not a first for a 24-hour period, but a first for a single session. The 24-hour period is still ticking, and overnight action will encounter global exchanges opening. All of which were closed during the majority and meat of Monday’s drop.

Monday’s sellers gained traction by exiting the bias environment under the noon hour’s low and entering the final hour lower. The 3:10-3:20 proxy window corrected, but wasn’t likely to recover a relevant level. Its bounce only refueled sellers for a final collapse to fresh lows.

While the size of Monday’s plunge is fascinating, it’s not unusual for a Friday-Monday sequence. And it behaved appropriately after the pre-open and post-open optimism of avoiding the overnight low’s retest. Even the velocity of suffering the consequences is normal.

What is unusual — highly unusual — is to have closed under the plateau at December’s highs on their first probe. That’s a lot of conforming selling pressure so late in the decline. It’s like a figure skater saving her quad jumps for the end of her program.

Extending down to a low mid-morning Tuesday would also be normal for this otherwise abnormal environment. Closing back above the plateau would have greeted that extra selling from a position of strength. Greeting the open from an overnight bounce would be unlikely to avoid resuming the decline.

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

January’s rally has now been retraced by 61.8% back down to December’s ~2700.00 highs. “Unfinished business above” at the highs up to 2878.50 requires a retest. There’s no timing element to fulfilling that requirement. Meanwhile, nothing requires this week’s plunge to extend down.

The decline’s next lower objectives under 2805.00 and 2793.50 were met at 2766.00 and 2760.00. Testing the latter and recovering to close back above 2766.00 would have at least suggested sellers had extended themselves. The position-squaring window trended down throughout, and the cash session close equated to 2760.00. Post-close action spiked down to 2755.25.

Extending down this week would next target 2747.00 and 2738.00 then 2722.00. All still within the context of a pullback, but unlikely to begin rallying without first forming an accumulative bottom. So, if this is one of those years with an up-January predicting an up-year, then extending down at all this week would be problematic.

• Details and other markets coverage are discussed in the post-market Wrap recording here.
• REMINDER: THERE IS NO SATURDAY REVIEW THIS WEEKEND
  

Thursday afternoon’s volatility was somewhat surprising, but it’s not. I had anticipated a choppy morning and a subdued afternoon, almost paralyzed by anxiousness ahead of post-close earnings and pre-open payrolls. But bonds collapsed, paling future developments by comparison.

And bonds aren’t finished probing lower. Perhaps in the near-term they’ve overextended and Friday’s Employment Situation report will have only a brief shallow effect before S&Ps finally run out of sellers for this downleg. Next lower objectives are 2805.00 and 2793.50 before getting more aggressive.

Otherwise, like Thursday, Friday’s open isn’t likely to recover the 2835.00 line in the sand that would all but ensure momentum reversing up. But unlike Thursday, simply rallying out of Friday’s open — however shallow — could leverage Friday Factors to squeeze out a rally anyway.

Meanwhile, initially negative knee-jerk reactions to earnings (AMZN, AAPL, GOOGL) were reduced or reversed. That behavior was excessive optimism when the market did it on a Wednesday afternoon. Now it can be bullish if maintained through a Friday open.

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

The initially favorable knee-jerk reaction to the afternoon’s FOMC policy statement was actually a little delayed. But it wasn’t a knee-jerk reaction down, and that was apparently reason enough to attract a 6-7 point buying surge attacking 2835.00. A brief surge, because that’s not enough reason to extend. Instead, the rubber band had been stretched, and it snapped down hard — extending to fresh lows at 2813.00.

RSIs diverged positively on a retest of 2813.00, but it had become too late to attract counter-trend sponsorship. Also, sellers gained traction by exiting the bias environment under the noon hour’s low, and then entering the final hour lower still. Gapping up Thursday above 2835.00 would invalidate that downside traction, but any shallower would be difficult to avoid probing another fresh low.

A late bounce underway as of this writing is attacking 2824.00 and has room up to 2830.00. Either would still be plausible for extending higher to gap up. But reacting back down into the close could be compelling for a hold-short, to at least probe lower lows overnight down to 2805.00 or 2793.50.

• There was no Market Wrap.
  
• Monitor overnight Globex trading in the chaRTroom here.