Stock Market Trade Signals - 02-02-2016

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

CHARTROOM LINK (pre-open Market Tour begins at 8:55 ET)

Through the prior close... Gapping down Monday held Friday afternoon's lows to avoid trending down lower than 1912.50. The gap back up to Friday's 1931.00 close was eventually filled on the way to fresh highs at 1940.00. Reacting down retraced deeply enough not to close above Friday's 1933.00 high, so its breakout wasn't confirmed. Overnight action's new info... Monday's late reaction down extended deeper to test 1924.00. A shallow bounce there resolved down, too, eventually touching 1909.25. Its reaction up is testing 1920.00. If, then... Whether a rally is accumulative or distributive depends on its origin, what it probes, and where it closes. Yesterday's recovery failed to close above resistance that it tested intraday. So, trending up from the morning's lows was actually distributive. Timing can be revealing, too. This is why not filling the gap back up to Friday's 1931.00 close until late-Monday would have been vulnerable to reversing down sharply. And it has reversed down sharply, as the 1910.00 high of last week's range was tested overnight as support. But distribution doesn't become a downtrend until support is broken through a relevant timing window. That opportunity is presented by the overnight decline. Not recovering above relevant support through the open would be vulnerable to probing into last week's range down to 1904.50. . First Trade... Exiting the open above 1924.00 at 10:15 would be unlikely to trigger the 1921.00 bias-down signal at 10:15. Exiting the open at 9:45 under 1918.50 would be likely to trigger bias-down. Exiting the open under 1911.50 would be unlikely to recover the 1915.50 bias-down target at 10:15, renewing the bias-down signal.

Probing into last week's range below. The open's make-or-break seems to have broken. A narrow pre-open consolidation quickly extended down under 1911.00 to test 1904.50. That broke lower to 1901.25, a little short of its potential to the 1900.00 area. Back above 1905.50 could begin a corrective bounce up to 1911.00 and 1915.00. Otherwise, the 1900.00 area could be probed down to 1886.00 before signaling a much bigger decline underway. And a much bigger decline would be to probe under last week's lows, resuming the prior downleg. Testing 1900.00 and 1886.00 can be avoided by a bigger bounce. But the bigger bounce must be productive going into the noon hour to be credible.

TUE afternoon signal (triggered at 1:20 ET) SPX ES Bias-up: above 1920.00  1913.00 ...would target  1925.25  1918.25 Bias-down: under  1908.50 1901.50 ...would target  1902.50  1895.50 Signal status: BIAS-DOWN 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.

Bouncing from fresh session lows. This morning's range was essentially centered around 1904.50. A late recovery effort twice tested 1911.00, but collapsed to new lows at noon. Its drop to 1896.75 has been retraced to 1904.50. That's beyond optimal for maintaining the decline's momentum. So, resuming the decline should be aggressive and pretty soon. Otherwise, bouncing any higher could isolate the probe under this morning's lows, while reversing momentum up. Bottoming here could bounce to 1913.00 and 1924.00. Lower lows would likely test "lower prior highs" just under 1890.00. Extending under 1886.00 could soon test 1869.00. .

Tuesday's probe under 1890.00 proved deep enough. For Tuesday. Having stopped short of recovering the last downleg's 1899.00-1900.00 origin, the late bounce was not sponsored by strong hands. The last downleg's 1899.00-1900.00 origin wasn't even touched during the late bounce. That's pessimism, which can be bullish from a contrarian perspective. Wednesday's first trending attempt is vulnerable to being a false break that reverses more substantially in the opposite direction -- especially if the first break is being reversed already during the opening 15 minutes of volatility. Details and other markets coverage are discussed in the post-market Wrap recording here.

Monitor overnight Globex trading in the chaRTroom here.