Stock market price action creating rare setup

June 20, 2013 06:40 PM
Price action and setup analysis

If there were ever an opportunity for rare setups… then it would be this environment of trending sharply, to new lows, into expiration. One such setup is a three-day trend reversal, trending through a prior extreme. Two days were just spent reversing back under recent lows. The rare third consecutive day would be very powerful. That is, if rare setups are in vogue.

Pattern points… (Setups and technicals)

Sellers were strong-handed Thursday afternoon. Its bias environment was exited under the noon hour’s low and the final hour was entered lower still. Then the 3:10-3:20 window trended down, producing a fresh low.

But the fresh low was relatively shallow compared to its prior low, its break was hardly aggressive. Oh, and it retraced all of the 3:10-3:20 window downtrend, back to the bias environment’s low. The final hour’s entry was recovered through the close.

While a late short-squeeze was avoided Thursday, selling pressure has been thinning out. That’s not necessarily bullish, and could be caused by the test of long-outstanding “lower prior highs.” But the decline probably can’t absorb a bounce before resuming the decline.

The weekend’s impending illiquidity and Quadruple Witch expiration will exacerbate volatility. That volatility will leave make any trending vulnerable to reversal. Whether an early rally attempt, or a gap down, look for wide opinion shifts intraday.

What’s Next… (Outlook and opportunities)

The 1575.50 target was attacked to within 2 points at Thursday’s low. There is room for noise under it down to 1567.50. No rally attempt would be considered durable until recovering 1598.00-1600.00.

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