Day Trading Patterns - 01-06-2015

Proper context can start the day with a solid win and make all the difference.

Enter the Chartroom here (pre-open Market Tour begins at 8:55 ET)

Through the prior close...
Despite having met and held the decline''s 2040.00 target at Friday''s low, the decline resumed Monday by gapping down. Exiting the weekend with extreme sentiment is often a sentiment extreme. So, not reversing quickly suggests that there is plenty of extreme to come. In fact, the balance of the session trended down into the final hour''s test of 2010.00. In fact, although not by decisive margins, the afternoon''s timing windows each were lower than the last -- sellers gained traction for the effort.

Overnight action''s new info...
Monday''s last-hour bounce had nearly fulfilled its potential to 2020.25. Meeting it soon after the Globex open was reacted down 9 points through early-morning. Another bounce, now 90 minutes old, is probing fresh highs up to 2022.50.

If, then...
Monday''s low was a 61.8{faed0d6dca04cec8b6b7985efddb9b0651107a3aebb05f69f0166038b8c951f6} retracement of the prior rally leg, making today vulnerable to a bounce. The first of its two 2022.50 and 2029.00 objectives has been touched. The higher target remains likelier -- but not if the first objective isn''t exceeded through the open since it has been touched already.

First Trade...
Exiting the open at 9:45 above 2022.50 (and also above 2024.00 if it were touched already) would be likely also to trigger the 2023.25 bias-up signal at 10:15. Exiting the open under 2013.00 would be unlikely to trigger bias-up, and at least test the 2011.50 bias-down signal.

Dry cleaners morning?

The pre-open reaction down from 2022.50 tested 2014.00. Bouncing through the open peaked at 2020.25 resistance. 

2020.25 is important resistance (it was the upside potential to yesterday''s late rally, and it was last night''s initial high). Not exceeding it through the open correctly warned that the bias-up signal wouldn''t trigger. 

More important than 2020.25 holding its test, and not triggering bias-up, was that sellers weren''t being influential. So, extending yesterday''s decline was very unlikely.

That didn''t prevent a couple of dips into negative territory, bot testing 2013.00. But they did not extend down. And that made this a "dry cleaners morning," just trying to extend down when it was already too late to be credible.

Dry Cleaners morning means reliable, predictable setups being replaced by choppy, indiscriminate swings. In fact, retesting 2013.00 reacted up to touch this morning''s 2023.25 bias-up signal. It was too late to be triggered, so its test has reacted down.

2023.25''s test has reacted down A LOT, testing the 2011.50 bias-down signal. Similar to 2023.25, this should define the no-bias environment range''s lower-end. And the dry cleaners morning should remain intact.

TUE afternoon signal (triggered at 1:20 ET) SPX ES Bias-up: above 2012.25
2005.25
...would target 2018.25
2011.50
Bias-down: under 2000.00
1993.25
...would target 1994.50
1987.50
Signal status: BIAS-DOWN, BIAS-DOWN TARGET MET FAQ INTRO VIDEOS #1 and #2

1. At 1:20, trading above the bias-up signal or under the bias-down signal would put into play a test of its bias-up or bias-down target.
2. Not triggering either bias signal at 1:20 would be "no-bias," and the bias signals should define the bias environment''s range.
-- A test of the opposite bias signal would be targeted if one bias signal was tested before triggering no-bias.
3. Touching the bias signal within 3 minutes either way of 1:20 would invoke a grace period through 1:30 to trigger a late signal.
-- "Late" signals don''t require testing the opposite bias signal, but it''s still likely.
4. Still testing the bias signal at 1:30 after invoking the grace period would trigger "noN-bias," with no bias influence.

A daily summary of high-profile members of several complexes... View a more detailed discussion of each chart at the end of today''s Market Wrap.

Eurodollar Mar Contract (EC, ETF: (FXE))
Tuesday''s gap down back to Sunday night''s 1.1895 low was reversed temporarily into positive territory, but the afternoon retraced it all to further avoid forming a bottoming pattern.

Gold Feb Contract (GC, ETF: (GLD))
Gapping up again Tuesday seemed ready to confirm Monday''s close above 1195.00-1200.00. Resistance at 1212.70 was eventually overcome to test 1223.00. Back under 1205.00 through Wednesday''s open would undermine Tuesday''s confirmation that momentum had reversed up.

Silver Mar Contract (SI, ETF: (SLV))
Monday''s test of 16.20 resistance resolved up Tuesday by extending to test 16.75. Closing back under 16.45 would reverse momentum back down.

30-year Treasury Mar Contract (US, ETF: (TLT))
The rally continued beyond its minimum objective to test 148-12 and 149-08. That''s a lot of buying pressure without much of an interim pullback since signaling the buy signal at 143-00, and with Friday''s Employment Situation report just ahead. Closing back under 148-23 suggests at least a corrective pullback underway.

Crude Oil Feb Contract (CL, ETF: (USO))
Closing Monday under the 51.75 target had put into play a next lower target at 47.45, which was attacked to within a dime by Tuesday''s slowly relentless grind to fresh lows. Room for noise down to 45.90 may be tested intraday. But closing any lower would start to signal a much steeper and deeper downleg beginning.

Natural Gas Feb Contract (NG, ETF: (UNG, UNL))
Monday''s failed probe above 3.07 was reversed even deeper Tuesday, filling the gap back down to last week''s 2.92 close. The gap was recovered through Tuesday''s close after testing it intraday. Now closing above 2.98 would be a preliminary signal that momentum is reversing up.

If Tuesday''s low isn''t THE low... then THE low is much, much lower. Perhaps a brief, compartmentalized probe of fresh lows could still be absorbed. But not rallying Wednesday afternoon could be because the decline is already extending.

Pattern points... (Setups and technicals)
Having broken lower Monday under the decline''s minimum 2040.00 objective, lower sub-2000.00 targets were put into play. But, first, a bounce had room up to 2022.50 or 2029.00. Only the lower bounce target was tested -- first overnight, and then at the morning''s 2023.25 bias-up signal.

The sub-2000.00 targets were 1994.00 and 1983.50. Tuesday''s low came within 3 ticks of 1983.50, which suffices. After bouncing to 2010.00, Tuesday''s close dipped back to 1994.00. The decline''s targets were thoroughly tested, and held.

Tuesday morning''s drop under the morning''s 2011.50 bias-down signal was inappropriately timed. That required its eventual retest, regardless of having probed 27 points below it. Recovering it to within 6 ticks does not suffice. So, 2011.50 remains "unfinished business above" to help attract price higher.

Shallow bounce, targets fulfilled, unfinished business above. If that combination can''t launch a rally Wednesday, then a much deeper decline is probably underway. Much, much deeper.

What''s Next... (Outlook and opportunities)
Focus is turning to Friday''s Employment Situation report. Not  We''ll get a glimpse of the market mood with Wednesday''s pre-open ADP report. Tuesday''s session initially reacted positively to weak economic reports, so I''m assuming that template still applies.

WED morning signal (triggered at 10:15 ET) SPX ES Bias-up: above 2018.50
2011.50
...would target 2024.50
2017.75
Bias-down: under 1997.25
1990.50
...would target 1990.50
1983.50
Signal status: BIAS-UP, BIAS-UP TARGET MET FAQ INTRO VIDEOS #1 and #2

1. At 10:15, trading above the bias-up signal or under the bias-down signal would put into play a test of its bias-up or bias-down target.
2. Not triggering either bias signal at 10:15 would be "no-bias," and the bias signals should define the bias environment''s range.
-- A test of the opposite bias signal would be targeted if one bias signal was tested before triggering no-bias.
3. Touching the bias signal within 3 minutes either way of 10:15 would invoke a grace period through 10:30 to trigger a late signal.
-- "Late" signals don''t require testing the opposite bias signal, but it''s still likely.
4. Still testing the bias signal at 10:30 after invoking the grace period would trigger "noN-bias," with no bias influence.