Saturday Strategy Session’s recording and transcript
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Saturday Strategy Session
9:30am ET 09/28/14
Let”s talk about last week”s market, which was all over the place. Happy New Year. Happy Rosh Hashanah. Although that depends on your perspective I suppose.This is Rosh Hashanah. Hashanah came in, and the word is out that Wednesday was a big setup. I”ve got to say that Wednesday”s setup was pretty productive. Certainly, we had had our share of it and anticipation of it, in fact. Just to point out last week”s session was, in its entirety, not bearish unless it could get something done and maintain it. What does that mean? It means that buyers weren”t rejected. It means that probe of highs didn”t fail. It means that the burden of proof last week was on sellers, not on buyers to maintain, but on sellers to reverse, and sellers did reverse, but they didn”t maintain it.
Here”s what happened. Starting Monday, gapping down from Friday”s big reversal, extending down Tuesday, and then Wednesday”s rally. We”re going to go into a little greater detail on that in a moment, but I just want to finish up with the point about sellers bring it, but not maintaining it. This is when sellers brought it on Thursday, gapping down, despite Wednesday having recovered from probing the prior session”s low, to closing to prior session”s high on an outside day.
An outside day in the context of a multisession decline. I”ve seen all kinds of interpretations of that being predictive of this, predictive of that, depending on volume doing this or volume doing that. I”ve never seen any correlation that was reliable other than an outside day does point out that the market is at a significant point.
This is a significant point. This range. The outside day itself. The day that it”s being encompassed. Important stuff happens there. So, it”s interesting that first of all Thursday”s open gap down to reject what? To reject that portion of Wednesday”s rally that recovered the prior day”s ranks. Wednesday”s rally was significant for having closed back above the prior day”s range. If not for that, Wednesday”s rally would have been noise, and the decline would have resumed or had the bounce tried to expend Thursday, we would have expected it to fail. The decline did resume anyway, but it resumed from a close above the prior session”s high. So, there”s a greater burden of proof on sellers at that point.
All that sellers were able to do at Thursday”s open was to produce a gap down under Tuesdays high, under the level that Wednesday”s close had recovered, and that”s not enough. That”s a proxy. Thursday”s open is a proxy. If Thursday”s open wants to invalidate anything that Wednesday”s rally accomplished, it”s going to have to do more than just retrace what Wednesday”s rally had accomplished, and it did it. It needed to gap down under the prior afternoon”s low — not that that made much different for the decline”s productivity Thursday, but for the chart, for the context of revealing whether that was strong handed or weak handed sellers, gapping down under the prior afternoon”s low as opposed to just under that segment that the prior afternoon”s rally had recovered, made a lot of difference.
Now, the first 15 minutes of volativity did extend down Thursday, did extend down to that level that really needed to be broken through the open, at least at the latest the opening 15 minutes, but it was still just a little too late, a little too little, too late. So, at the very least, there is still a door open at that point, no matter what the productivity of seller”s on Thursday, there”s still a door open that they are weak-handed.
They did go on to produce a close under the prior low two weeks earlier, the Monday 15th low, the low that intervenes between September”s two highs, the Labor Day high, last Friday”s high. That they did run low Monday the 15th is pretty important. It was so important that it produced a new high. There shouldn”t be any foolish reason to revisit it, let alone break under it through the close, and Thursday”s close broke under it. That”s a trend change signal.
A trend change, like a breakout, is certainly relevant. It”s very predictive and potentially very productive, but it requires confirmation. Unlike a breakout, which requires reconfirmation of a second consecutive close in the direction of the breakout, a trend change is counter trend. So, trend change is just trying to prove that the prior trend”s sponsorship is no longer defending the trend. So, the trend change signal doesn”t have to produce a second consecutive close in the direction of the trend change. The trend change signals confirmation. It simply needs to maintain the break, the break under the level that was broken by the trend change signal.
Really, it shouldn”t have been too difficult, not if it”s a valid trend change. Thursday”s trend change closed testing 1960. The afternoon was not accumulative. That created requirements to test, to probe, under Thursday”s lows at some point, and having gone out and testing 1960, the priorMonday”s lows that were broken were significantly higher. At the lowest, the closest was 1968.50, which was the Globex low Sunday night for that session. There was the intraday lows of 1969.75, there was the cash session close, basically 1975.50, and then there was the intraday high of 1979. A lot of target points, a lot of important decision points in that session that failed to hold, that weren”t defended.
They were all recovered on Friday. The way they recovered it itself is suspicious. We were already suspicious of Thursday”s trend change signal. It came in a low volume environment where there was a lot of participation missing as the Jewish New Year was being celebrated and observed and services. The origin of the drop was from an outside day that had recovered the prior session”s highs in a multisession decline. The gap down wasn”t low enough to reject the outside day”s sponsorship.
So, we were suspicious at the point, but still needed — because of Thursday afternoon”s non-accumulative ranging — still needed some fresh low to be rejected. In fact, that”s the path that I thought the market was following, was the rejection of a fresh low, whether it was overnight, post-open, just early enough so that the rejection could trigger a short squeeze. We didn”t get the fresh low.
[We actually did get a fresh low. I don”t consider it that relevant, maybe the market did. I”m not going to start making exceptions for literally, momentary, fresh lows pre-open. I do have to note that the market did do that, but that doesn”t qualify for what I was expecting for this pattern as much ranging as it was, still needed and needs, a little more pessimism to be rejected than that. By the way, if that were valid, that pre open probe of a fresh low, momentary, quickly rejected. If that was sufficient, then the bounce in the morning should have been exited in positive territory well about Thursday afternoon”s highs, and it wasn”t.
That”s why Friday”s rally surge was so suspicious, not suspicious in that we didn”t have a signal intended to capture it. It exceeded the target, the objective, and helped pull back when it”s easily on the way to its ultimate highs, but that doesn”t mean that it”s doable. That doesn”t mean that it”s any less suspicious than was Thursday”s trend change signal because notice when that break had to happen. It had to happen… when? During a low volume environment.
Sound familiar? Thursday”s low volume environment. These are directional tools, low volume. These low volume environments are just vulnerabilities, and the vulnerability was up, and Friday afternoon took full advantage of that, the least relevant timing window of the week. Less so on this Friday because there”s still the more observant. We”re still somewhat worshiping for New Year. Look at the left line, even more vulnerable.
So, what do we have when we”re left with a trend change signal on Thursday, that was itself suspicious because of the volume environment that was invalidated by Friday”s close, recovering the entirety of the prior Monday”s panoply of relevant levels? Not 1979, but that”s the least of it. So, just because the rejection of the trend change signal, or the lack of its confirmation was low volume and the signal itself was low volume, no harm, no foul, I”m still suspicious of being able to just start trending down. I predict there being another drop on Monday.
That doesn”t prevent actually getting the tests of Thursday”s lows out of the way, it is an important place point. Notice the congestion, we talk about congestion a lot. Brief periods of time that are very choppy in relatively narrow ranges, congestion. That creates an attraction. It creates mass like a planetary object has its gravitation pull, try getting out of its orbit and get luck with that. Very often, we”re traced back to it. We have to get out of it more substantially to be sure not to have to return back into it.
So, there”s a lot of mass at Thursday afternoon”s lows, and there”s still a good chance of retesting it, just to get that retest out of the way. I”d like to see a fresh low out of it, and especially just a percentage or trades went into it, and then retrace back above it. That would help to form more of a durable bottom, not that the bottom is going to do anything more than take care of last Friday”s unfinished business above.
There is, not necessarily the gap back to last Friday”s close. Last Friday”s cash session close equivalent, or let”s say a future’s close 2003, cash session close equivalent to 2025. The cash at the open itself gapped above all prior intraday ranging, it needs to be retested from below, and it could have been retested earlier. I don”t have a trail aid. It could have been rested already and hasn”t been. Typically, those are retested. That”s basically 2011, 2010.75. Then, even prior to that, the overnight high that was being tested in reaction to the Scotland Referendum at 2014.50, “new Globex tend extreme.” So, these are the things that are inhibiting a downleg from beginning, running along, getting traction, and extending. Therefore, that context undermines the trend change signal if it should appear, which it did, and it was undermined.
So, having to trace back into the trend change range of signal to close back at or above the majority of that range…I”m not ready to look for a runaway rally. This may look like a flag, Friday afternoon. That”s just not the place where flags appear. It may look like a flag, which is a continuation pattern that resolves up, but this one is still vulnerable to resolving down. Sunday night, if there is an attempt to extend higher since Friday”s 1975.29 high, accompanied by both 1-minute and a 3-minute RSIs that were overbought simultaneously. These could be retested.
That can be neutralized overnight, and if Sunday night”s open would somehow get back up there to do that gap up there, trend up there, and I”ve got 2 levels, 1980.50, 1982 — these were at a block, by the way, preferably in this area. I don”t know that I”d step in front of that. On a Sunday night, that can be very dangerous, maybe on the way to exceeding it even more so, but that”s the first spot of failure potential.
I certainly want to be short if an opening bounce in 1980.50, 1982, into that area, were reversing back into negative territory. I would be expecting that to produce, at the very least, retest of lower prior highs back in Thursday afternoon”s range, if not at 61.8% retracement and, more likely, a fresh low. The burden of proof remains on sellers, even in that regard. The burden of proof would be to close under Thursday”s lows. Otherwise, an intraday probe under Thursday lows would be more vulnerable to bottoming, to recovering, resuming the rally, taking care of some gaps above — neither one of which has to be tested, but if one is tested, the fill that is, the next one would be filled, too, probably.
Once we get back within proximity of last Friday”s range, filling the gap at the open, testing its pre-open high, these become formalities. That”s if, by the way, whether it”s starting with a bounce initially that fails, or if Sunday night/Monday already drops to retest Thursday”s lows. A bounce may not fail. It may simply go on its way to testing Friday”s range and getting that out of the way. While this pattern Thursday afternoon was not accumulative, and the break higher was wrong-timed for the sponsorship being strong handed, we don”t get to acquire a complete retracement and retest of Thursday”s low. It”s just very likely in this pattern that any rally in the interim is suspicious. That doesn”t prevent a rally in the interim. It will be suspicious in that we”ve already expected to be a new rally leg to new highs, but it will be capable of retesting last Friday”s range.
Finally, if there is in fact a retest of Thursday”s range, Thursday”s lows, fresh lows, and not a recovery, then the drop extends. I”m still not anticipating that that become a bigger and better market. I”m not anticipating it at this point, not with the way that it began, but the next lower objective, in any case, would be the lower 1940 handle.
Okay, let’s do the new car raffle. Everyone have their entry numbers?
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