Gang aft agley (Trading Plan for 4/15)

[pay]Monday afternoon’s low probed the morning’s low by 1 tick down to ESm 1327’25, but half of the 4-1/2 point bounce from there was returned into the cash session close. The 1325’75 overnight low is still very likely to be retested before any sustained rally can get underway, and the gap back to March 31’s 1321’75 close is likely to be filled in the process.

Gapping down at Tuesday’s open might prevent sellers from gaining traction, while fulfilling the selling pressure’s target – a great formula to trigger a rally. The rally wouldn’t be durable, but its slope and degree would make it seem that way. Meanwhile, overnight price action might instead firm up to the 1333’25 or 1335’00 area in sympathy with a relief rally among Asian markets for U.S. stocks not having extended Friday’s decline. Several banks announce earnings very early Tuesday, and then CPI is due at 8:30am ET.

Best-laid plans aside, gapping or sliding down does carry the risk of inviting a new breed of seller. And at this stage it would be a truly disgusted seller motivated by asset allocation. That sort of selling can get out of hand fast, as it is less likely to be concerned with big price drops between the open and mid-morning. So the most appropriate buy signal in case of opening weakness is to at least recover above Sunday night’s 1325’75 low, and then quickly back above Monday’s 1328’00 area lows.

I’ll provide long-entry parameters to buy into strength if the overnight price action suggests that’s its next move, instead.[/pay]