Trading Plan for 10/1
[pay]Pattern notes.
The third-biggest point gain was an inside day, a session-long rally that retraced all of Monday afternoon’s plunge back to its origin. More damning is that the session-long rally was bounded by the prior afternoon’s range alone, a combination that normally proves to be a correction.
The peak completed a 61.8% retracement from Monday’s post-close low (ESz 1112’00) back to Friday’s close. There are many Fibonacci relationships between the relevant price points of Tuesday’s price action, and patterns that formed during previous sessions. This suggests strongly that Tuesday’s price action was a reaction to – and part of – the decline. It was not a new rally leg.
We already knew about the unfinished business back at Monday’s lows that needs to be retested intraday: the gap from Monday’s close, and the post-close low that is a “new Globex trend extreme.” It’s not bad news for bulls, if they can temper their optimism for now. Tuesday’s rally nearly recovered above a prior low, which would have made the eventual retest of Monday’s low less likely to hold.
A better bottom would form if the charge to new lows were lead by exhausted pessimists, instead of by refueled bears. But that won’t be on the agenda if Wednesday’s open isn’t already trying to reverse back under Tuesday morning’s 1152’00 high. The alternative to early selling Wednesday would probably extend Tuesday’s rally. That would still be vulnerable to an afternoon reversal, which would be the last chance to derail a more substantial bear market rally.
Indicators and Internals.
RSI fought becoming either overbought or oversold throughout Tuesday’s session. The exceptions were uncharacteristically rare. The complacency that this reflects is difficult to maintain, so a choppy session should follow. The session ended with 1-minute diverging negatively, but 3-minute wasn’t extended enough for the immediate fallout to be substantial.
Wednesday’s opportunities.
Tuesday’s last-minute gains were made almost grudgingly. A short-squeeze was ready to go but waited minutes too long to resume. Instead the market limped higher into the close. The consolidation prior to that can have a second chance to launch a surge. Pullbacks should hold 1161’00-1162’00, and not break under 1158’00. Otherwise, a run at Monday’s lows would be much easier to accomplish this week.[/pay]