Stock Market Trade Signals - 05-31-2016

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... Friday's open immediately resumed Thursday afternoon's rally. The 2090.00 open extended to 2095.50 by noon. Yellen's comments produced the negative knee-jerk reaction and its retest that was expected to launch a recovery. The 6-point pullback to the opening print had stretched the rubber band to launch an 8-point rally through the close. All but 1 tick of the potential to 2097.00-2098.00 was fulfilled. Overnight action's new info... Friday afternoon's rally resumed immediately Sunday night, trending up to 2103.75 by midnight. Drifting to as low as 2099.50 never got any more volatile before the holiday's Globex close. But Monday night's Globex session extended the pullback to 2098.00 and then more recently to 2096.00. Its reaction up is probing back above Friday's late highs. If, then... Complexity during Sunday night's probe of fresh highs created a "new Globex trend extreme" that requires intraday retest, often the same day. It touched the six-week old 2101.00-2102.00 Apr 19 pivotal high, which tends to require extending to test the 2108.00-2109.00 Apr 20 actual high. Resuming the rally this morning might not be necessary for keeping intact the relatively steep trajectory that has been expected for this leg. But any pullback should be confined to the morning's bias environment to avoid signaling a deeper detour. First Trade... [Click here to view the Bias parameters] Exiting the open at 9:45 under 2098.00 would be unlikely to trigger the 2101.00 bias-up signal at 10:15. Exiting the open above 2103.00 would be likely to trigger bias-up. Exiting the open under 2093.00 would be likely to trigger the 2091.25 bias-down signal.

Congested open capitulates to sellers. The 2101.00 bias-up signal was touched  twice before the open. The open's reaction down pierced its 2098.25 pullback limit by 3 ticks. Recovering to retest 2101.00 never attracted new sponsorship to trigger bias-up. Actually... ...still overlapping the signal at 10:15 AND at 10:30 triggered noN-bias. Not a bias-up putting into play its target. Not a no-bias putting into play an offsetting test of the bias-down signal. But noN-bias that has no predictive value. That said... ...improving sentiment toward Brexit triggered a knee-jerk reaction down that tested the 2096.25 bias-down signal. Testing and retesting it has only overlapped it, while violating its bounce limit.

Back above 2098.25 would start to signal momentum reversing up. The plunge's sponsorship is by definition weak-handed, its catalyst having been a headline. The plunge's origin was congestion, a setup that is typically retraced, regardless of how that then resolves.

Meanwhile, another dip under 2096.25 would be credible for extending down, anyway. Its potential would be the 2091.25 bias-down target.

TUE afternoon signal (triggered at 1:20 ET) SPX ES Bias-up: above  2099.25 2097.00 ...would target  2104.50  2102.25 Bias-down: under  2093.50  2091.25 ...would target 2087.75  2085.50 Signal status: NO-BIAS, TESTED BIAS-DOWN SIGNAL 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.

Testing supports, not gaining traction. This morning's plunge from testing the 2101.00 bias-up signal eventually extended down to test its 2096.25 bias-down signal. That would have been required by dipping just moments earlier to trigger no-bias. It was done anyway. Delaying the break actually created more potential downside. No-bias would have required holding the bias-down signal. Instead, noN-bias removed any limitations to the morning's range. And its break extended the drop to test the 2091.25 bias-down target, which would have been required if 2096.25 had broken lower earlier. 2091.25 had become this afternoon's bias-down signal. Like this morning's bias-down signal, it didn't trigger. It could have triggered, unlike this morning's signal.

So, are sellers finally done?

The bigger picture premise maintains the likelihood for resuming the rally. This morning's detour was acceptable, but now risks upsetting the recovery's slope by persisting into the afternoon. Being a no-bias environment, the 2097.00 bias-up signal should define the range's upper-end until the bias environment begins lapsing at 2:30.

Fresh lows have room down to 2089.00 before signaling a much deeper pullback underway. New highs would remain likely, but the detour would be undefined.

Was Monday's drop from 2101.50 an unscheduled detour? Isolating it to the morning would have been perfectly acceptable within the pace and slope of characteristics likely for this recovery leg. The afternoon's 2086.00 lower low can be dismissed because it was reversed  back above the noon hour's 2094.75 high. The morning's 2096.25 bias-down signal was overlapped by 1 point. A last-minute plunge to 2090.50 is irrelevant, having originated AFTER coming within 3 minutes of the cash session close. Greeting Wednesday's open back at or above Tuesday morning's 2101.50 high should not delay extending higher through the morning. The holiday's 2093.75 Globex high requires a retest intraday, and the next higher attraction is 2116.00-2119.00. Otherwise, resuming Tuesday's decline would all but require gapping down Wednesday under 2086.50. Details and other markets coverage are discussed in the post-market Wrap recording here.

Monitor overnight Globex trading in the chaRTroom here.

WED morning signal (triggered at 10:15 ET) SPX ES Bias-up: above 2102.00 2099.75 ...would target  2109.00  2107.00 Bias-down: under  2091.00  2089.00 ...would target  2084.75  2082.50 Signal status: noN-BIAS, TESTED BIAS-DOWN SIGNAL 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.