The sizable overnight drop and its more sizable pre-open recovery stretched optimism too thinly. Its eventual recovery still ended the day just above the overnight high. Buyers expended a lot of energy ahead of Friday’s high-profile econ report. More importantly, the market embraced fluctuation, just ahead of the same highly-influential report.
Pattern points… (Setups and technicals)
The afternoon bias environment fulfilled the retest of the 1154.75 pre-open high. It was tested up to 1256.75. And retested while RSIs diverged negatively. A dip tested their 1252.25 interim low.
No unfinished business above. Buying pressure waning. Timing window lapsing… And big news item just ahead (Friday’s pre-open Employment Situation report). What a wonderful opportunity for a sell-off — whether to discount pessimism and anxiousness ahead of the report, or to start a new downleg.
One catch: Reversing down from session highs can’t wait until the last minute. And the last minute is the bias environment lapsing at 2:30. At last the afternoon’s 1251.00 bias-up signal was touched, launching a rally up to 1259.75.
This action definitely reflects optimism, but not necessarily excessive optimism. Unless Friday’s open were to reverse down under a relevant support, fresh highs are likely, and likely to extend higher.
What’s Next… (Outlook and opportunities)
Thursday’s close did not trend up, so gapping down under the afternoon’s low may not be difficult to absorb. Having closed above 1248.00, a second consecutive higher close would make the rally likely to extend through Monday’s open, targeting 1279.50 and higher. But closing under 1238.00 would signal the rally had ended, and a new downleg was underway.
Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.
Rod David develops analytical techniques that are designed to efficiently identify targets and turning points for any liquid stock or market in any time frame. He primarily analyzes S&Ps, generating several round-turn candidates daily. Rod publishes "Trading Plan" and more each session at the blog http://IfThenSignals.com.