How Friday's price action sets up Monday's market

Price Action & Setup Analysis

If Thursday’s drop was the start of something bigger… then shouldn’t Friday have extended it? Not necessarily. Trapping longs with failed bounces can be bearish, too. Perhaps more so. Even in the most bearish scenario, the more timely question may be whether Friday’s bounces trapped enough longs to extend down yet.

Pattern points… (Setups and technicals)

Friday afternoon’s 6-point surge above 1826.00 was apparently in reaction to comments by Bernanke. Its complete retracement to close back under 1826.00 confirms the surge’s sponsorship was weak-handed. But the surge’s 1832.00 peak took RSIs overbought, so it was sponsored by the strongest hands available.

Overbought RSIs were lower overbought highs, but still overbought. Retesting 1832.00 without delay would likely hold, and reverse down more substantially. Extending down without delay would not be immune from resuming Thursday morning’s decline — through 1816.00 to 1803.00 and perhaps 1797.00.

Retesting 1832.00 without reversing down could extend back to Tuesday’s 1843.00-1846.50 highs. The resolution from there would be bearish, too. There just hasn’t been any accumulation at these levels, and optimism is still excessive.

What’s Next… (Outlook and opportunities)

Don’t forget that there is NO strategy session this weekend. So, the Market Wrap spent more time discussing the bigger picture. Stock requests or other questions can be posed Monday.

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 http://IfThenSignals.com.

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