Stock market losses Thursday showed restraint

Price action and setup analysis

If Thursday’s close wanted to be bearish… then it had sufficient time to do more damage. That doesn’t mean Friday can’t behave bearishly instead, but it does represent a missed opportunity for sellers to retake control from a pivotal area.

Pattern points… (Setups and technicals)

Wednesday’s pattern allowed its price action to be combined with Thursday’s resolution to form a setup. Thursday’s probe of fresh highs tested and retested 1631.00 before plunging back under Wednesday afternoon’s 1622.50 low. But that low held — and, anyway, a bearish setup required closing under Wednesday morning’s 1618.50 low — so no bearish setup formed.

1627.25 did continue to hold as resistance through all relevant timing windows. Probes above 1627.25 continued to drop sharply back under it, indicative of weak-handed buyers. Thursday’s last-minute bounce originated from AT its 1620.00 prior low, and not from below it, and the bounce fulfilled ONLY all of its potential buying pressure. So, buyers once again gained no traction despite probing more fresh highs.

Thursday missed an opportunity to signal that buyers were done, and that sellers were retaking control. Sellers may be done, and buyers may be retaking control. But now Friday’s close is the earliest opportunity to signal it. And a new high close Friday would signal just the opposite.

What’s Next… (Outlook and opportunities)

Gapping down Friday under 1615.25 would serve by proxy to signal the reversal that would have been signaled by closing Thursday under 1618.50. Almost any gap down would be likely to bounce back up to 1621.00. Meanwhile, recovering 1627.25 and 1629.50 through any relevant timing window would be bullish.

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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