[Uodated with Chart and Weekly Expected Move parameters]
More pressure on interest rates over the three-day weekend has the markets erasing most of Friday’s short-covering rally. The market will open on the intermediate trend threshold for the third test in a week and fourth of the year. I would use Friday’s low as today’s bull/bear threshold. The S&P 500 Futures WEM range is 4752 to 4576 this week.
If Friday’s low fails to hold, we would finally have a break of the intermediate trend, and we would then focus on the Weekly Expected Move low for the rest of the week. This would most likely lead us to establish the bottom of a trading range. If Friday’s low holds, then we have a chance of climbing back into the rising wedge on the daily charts.
Remember, we still have some cyclical forces and this Friday’s monthly options expiration, both exerting downward pressure on the markets. Wherever we might land, the wind could be at our back after the end of the month and starting into early February.
The cycles vary somewhat and could drag us into March, so we have to take this on a day-by-day basis. Also, we have a Fed meeting next week, so buyers may hold their powder until that meeting passes.
As of now, Gap Rules will be in play at the open this morning as the market is slated to gap lower (not a true gap but a significant one to the bottom of Friday’s range). Overnight inventory is net short, which could give us a bounce at the open on overnight short inventory profit-taking. If the market can move above the overnight halfback at 4626, that would bolster today’s bullish case. Below 4626 and I have to give a slight edge to the bears.
Persistence beats resistance. We cannot keep pounding on the intermediate trendline and expect it to hold much longer.
A.F. Thornton