Next big stock market down leg may be underway

March 13, 2014 06:03 PM
Price Action & Setup Analysis

If last Friday’s high isn’t going to demand a retest… then the next big downleg may be underway already. A second consecutive lower close Friday would confirm. No lower close might not be enough.

Pattern points… (Setups and technicals)

Like Tuesday’s gap up, extending Thursday’s gap up to retest last Friday’s highs would have been vulnerable to reversing down sharply intraday. Like Tuesday’s gap up, Thursday’s gap up failed. While Tuesday did eventually trend down intraday, Thursday morning’s steep, deep reversal traced out the pattern that would have been expected from retesting last Friday’s high.

Which raises the question: Was Friday’s 1880.50 pre-open high retested already by proxy? Since it was produce by trending before the open, it is a “new Globex trend extreme” that requires retest intraday.

There are a couple of not-great possibilities for having satisfied the attraction. And there are a couple of compelling reasons to suspect the attraction has been neutralized, regardless. The mirror image behavior is one reason — immediately reversing the gap up back into negative territory.

The other reason is that neutralizing the new Globex trend extreme was expected to satisfy all available buying pressure. Closing any higher would have suggested otherwise, putting into play 1901.00. The alternative need not form a durable top, but most of the alternatives do. And the steep, deep reaction down to 1834.50 trended down through relevant window to entrench sellers.

What’s Next… (Outlook and opportunities)

Thursday’s 3:10-3:20 timing window trended down to new lows at 1834.50, all but ensuring at least its retest, at least overnight. Or its intraday break by gargantuan margins. Regardless, reversing up any earlier might be premature, and likelier to fail. But this being a Friday, the morning’s bias is likely to persist through the noon hour.

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 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