Boston incident casts shadow over stock market technicals

Price action and setup analysis

If not for the Boston incident… then would there have been an entirely different resolution to Monday afternoon’s recovery attempt? The 7-point bounce had reached the precise crossroads where it could become a recovery, or remain a bounce.

Pattern points… (Setups and technicals)

Monday morning’s ranging at or under Friday’s 1574.00 never gained traction itself. Its recovery coming out of the bias environment would have left no unfinished business below to inhibit retesting last week’s high. Monday’s noon hour slide fulfilled the air pocket under 1569.50 down to 1561.25. Its reaction up formed a potentially bullish pattern.

That potentially bullish pattern is a Complex Descending Triangle, described in the blog post titled, “Do, or Die.” And that’s what it was, because recovering from 1556.00 to the Triangle’s 1563.00 upper-end would either extend substantially higher, or else resume the decline to new lows.

A little natural weakness at 1563.00 was soon accelerated by the news from Boston. Two fresh lows under 1556.00 indicated that it was not a knee-jerk reaction down. The cash session extended to 1546.50, futures extended to 1538.75.

The probe under 1555.50-1556.50 is trying to seal a top. A second consecutive lower close Tuesday would confirm. There is meanwhile room for a bounce back up to 1569.50 before Monday’s drop can again be considered as part of a temporary pullback.

What’s Next… (Outlook and opportunities)

The last-minute move two Fridays ago had surged up to 1548.50-1549.00. Its close is 1-2 points lower. And that’s the lowest close since the prior high. So, Monday’s close was testing it, potentially triggering a trend reversal. It would be credible if Tuesday’s close were negative, and under any prior low that was probed intraday.

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.

About the Author
Rod David

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

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