Saturday Review’s recording and transcript (for 10/25/2014)

Here”s the link to yesterday”s Saturday Review recording, and the transcript of its market discussion to follow along…

Good morning. Good morning, and welcome. It is Saturday. It”s time for the Saturday review. Thank you for joining us today. There”s really not a lot to discuss, except conceptually. I really have fleshed this thing out, but just to do a review of where we”ve been, so we can get to where we might be going and how to play Sunday night and Monday morning”s different possibilities. Kind of a rally, a little bit of a rally just experientially. This is kind of a substantial retracement already reversing on a dime, quite literally the bottom at the low. Regardless of the requirement, and it is a requirement, that the bottom be retested. This relatively substantial retracement entirely of this relatively sizeable drop isn”t going to, again, reverse on a dime. If it does, it”s an anomaly. Not meaning, “Gee, that”s the exception” but meaning, “look to buy it.” It doesn”t mean that this retracement, having been so productive so quickly, so substantially, is itself going to necessarily extend to new highs, although, that is a possibility to retest the prior high, just in the context of retesting it. This leg down had an opportunity to peak, or it”s retracement had an opportunity to peak, in a couple of spots. 1890 area, 95 was one. 1920.21 area was another, and just getting through, finally, the 1921 areas that this leg down isn”t being corrected. It”s being reversed. That”s not to say anything about it. It doesn”t say anything about the bigger drop because the high doesn”t have to be retested. Now, there”s some unfinished business up there, like a new blowback trend extreme. That”s another issue. That”s another characteristic of the market, a behavior that intends to return to those. It always has, so I assume it always will, but as far as counting out this decline, it”s running out its news.

Basically, this pattern, having been retraced through its lower end, actually, which is the level that it was testing on the way down. That”s been confirmed, and I”ll explain that in a moment. We”re not just correcting this down leg. That”s done. That opportunity is gone. We”re now reversing that down leg. It doesn”t mean it has to be reversed 100% or in the opposite direction that is 100%, the same degree, or to any degree. Just, the upper end of this pattern has to be probed. As it happens, that upper end of that patterns probe is targeting 1984. Now, there were a couple and still are a couple of one more resistance points along the way. One was at 1941, 41-43. 1941, rounded up to 43, and that was tested this week. 1941, the day following the close above 21, 41 was tested, 41.43, and it reacted all the way back down to 20.21 and held it. That was the opportunity for that resistance to jump in there and say, “Yeah, actually, this is the noise around 20.21. Change of plans here.” That can happen. It doesn”t happen often. When it does happen, it”s because something substantial is unfolding, and in fact, retrace substantially, not arbitrarily noisy, but right back down to the origin or to that trigger at least. That opportunity then, for that resistance to 41 to assert itself as being the peak of the corrective bounce, that melted away as well when the complete reaction down itself was recovered. That was Thursday. That was recovered. How powerful is that? Not only to signal that there is a more substantial target in play at 63.50 along the way, resistance 41 and 53.50 on the way to 84, not only was that first resistance as productive as it could be and still shut down, marginalized by Thursday”s gap up. How powerful is that? It”s this powerful. It”s this powerful that after 1921”s recovery, 41.43 reversed all the way back down. That was shut down.

This big plunge in reaction to the Ebola headline, and we”ve fleshed this out quite a bit this week, but the point being, it”s the relentless point that we”ve addressed. I don”t know how many headlines that have nothing to do with the market, and Ukraine and Russia tensions every time, every selloff was recovered, every pessimistic headline if it”s not financially related and even if it is, it”s probably already discounted. So, those sellers are kneejerk reaction sellers, recanted by definition. By the way, they aren”t selling because of what happened. They”re selling because they”re afraid of what follow on headlines are coming, and so, even when those other headlines have come, they”ve already sold. I”m sure that”s going to convert some more pessimists, but fewer and fewer. So, how powerful was that rejection of the rejection, recovery of the rejection? So, 41.43 back down to 21, that was rejected, and here we can see that was Thursday afternoon. Thursday night”s follow on totally gone by yesterday”s open, and then pretty much into and out of the Noon hour, so what does that scare? It”s pretty powerful. I”m pretty sure that we”re headed higher or that we”re going to be higher.

I”m not so sure that it”s going to be very immediate. Here”s a couple of reasons why. First of all, I pointed out just as 1941 was the interim resistance, the first of two interim resistance points on the way to 84, the next one is just around the corner at 63.50. Friday”s cash session looks pretty close, right? Just a couple/three points higher. Friday”s cash session close equated to 58.25, so there”s that much extra buying pressure being expended after the cash session close. Was it deserving? Not so sure about that, because when we look at the afternoon parameters Friday, here”s the Noon hour”s range, here”s the bias environment”s range. Final hour”s entry and 310-320 window didn”t do anything, we”ve already been highlighted. So, the bias environment”s exit,would you say that that was within the Noon hour”s range? I would. The final hour”s entry, would you say that was within the Noon hour”s range and the bias environment”s range? I would. In other words, buyers aren”t gaining any traction for their efforts. Buyers aren”t gaining any traction for their efforts.

Now, it”s a matter of timing here. Had the bias environment exited at 2:30, had that been above the Noon hour”s high, that would have marginalized sellers for the balance of the day. It would have been, usually, financially suicidal to try and short that or step in front of that, and often, the balance of the session rallies. The balance of the session rallied anyway. That doesn”t preclude, that”s not bearish, it just marginalizes sellers. It”s not bearish that the bias environment wasn”t exited above the Noon hours high, and the final hour didn”t offset either. This is not bearish. It”s not bearish, not necessarily bullish. It so happened that the rally extended, but that”s the problem. The rally extended when it didn”t have to. It would have had to extend had the bias environment exited above the Noon hour”s high. That would have represented buying pressure needing to be rewarded. That would have represented that weak-handed selling pressure couldn”t prevent, at that very late point in the day, buyers from gaining traction. So, despite sellers preventing buyers from gaining extra traction here, buyers will still rewarded. For what? For nothing. That tends to have a consequence. That tends to have the consequence of being reversed immediately at the following open. On a Friday, by the way. Not a lot of setups outlast the weekend. Just as often on Fridays, when that setup appears at the close on one day and that day is a Friday, just as often, that can be a risk on Monday.

We didn”t look at an old short. We didn”t look at an old short, because of two things. Number one, there was continued trending up into the close. That was actually indicated by the pattern. Not the intraday afternoon buyers, but just the end of day. These guys are already satisfied, already fulfilled. The degree to which they were fulfilled says just back into Friday”s cash session. Friday”s cash session close equated to 58.25. That”s essentially where this rally”s momentum, this legs momentum ends. Then, back up 55 signals momentum reversing down. I”m not ready to take that though, because I”d still like to see 63.50 tested, 63.50 being that next resistance after 41.

So, for Sunday night, and this is just for a correction by the way, just the same as Wednesday”s correction from 41.43 back down to 21 plus or minus. All we”re looking for is another correction, and I have several candidates for that. I really don”t want to see 41.43 touched ever again until we get to 84. Until 84 is tested, we really shouldn”t pull back to 41.43. If we do pull back that deeply, since we already have from a fresh high, and that already launched a higher high. If we pull back to 41.43 again, 84 is probably off the table at that point. So, depending on if we get to 63.50 before reversing down and a high 63.50 is probed before reversing down, if we do reverse down, that”s going to help firm up what the actual reaction or retracement would be, but let”s just say it”s precisely 63.50. If it”s precisely 63.50, then we”re looking at about 44, literally as much selling pressure as possible on the reaction down without actually touching 41.30. The higher that 63.50 is probed before reversing down, if 63.50 is even probed, if it even reverses down, the higher the pullback. We wouldn”t have to get down to 44. By the same token, one more thing to point out; if despite this launching pad I just described prior to that segment, how buyers didn”t gain traction for their efforts. Yesterday afternoon, the bias environment was exited within the Noon hour”s range, and the final hour was entered within probe ranges, yet price extended higher.

If regardless of that, regardless of what happened Sunday, Sunday might try to pullback. That will be irrelevant, but if Monday opens up, extends higher, and gets out above 63.50 through the open, we may be foregoing a pullback at all. At that point, if we”re not going to have the opportunity for another pullback or corrective dip, not even a very big one, but just a corrective dip in here instead having come so close to these prior highs…These prior highs are attractions. Once the market gets or returns back into the orbit, there”s a gravitational pull, and these prior highs at 19.64, 19.71, they”re not so much propellants as accelerants. Imagine a rocket ship being slingshot around the moon. It”s the same concept, as far as I know. We would then expect, not just to extend higher without interruption, without correction, but also at a very steep pace up to 84. Can you imagine what”s happening at that point? Not a lot of traction. A lot of enthusiasm and euphoria, and not a lot of ability to absorb a reaction down.

So, that”s where the next opportunity for resuming the decline would come. Get through 84, and of course, then we”re looking for new highs. New highs, really though, in the context of retesting the prior highs. New highs not in the context of a new bull market. Some probing to fresh highs, but just obligatory since there”s got to be some reward for it. Alright, slowly, but surely.

Let”s go look at some other markets, some other indexes, and then move on to stocks. If there”re any questions to any of that, please let me know.