Trading Plan for 10/10

Despite futures closing 4-1/2 points higher than cash… SPY isn’t reacting down much after the close on news of Moody’s warning of a Belgium downgrade. And that’s after Friday’s intraday drop absorbed bad news on Italy from Fitch. If the corrective rally’s top is in, then it should be obvious quickly to avoid extending higher.

Pattern points… (Setups and technicals)[pay]
The 20-point pre-open spike up was retraced entirely during the morning’s bias environment, i.e. by 11:30. The noon hour reversed back into negative territory almost 10 points more. The afternoon’s bias environment bounced back to unchanged.

Exiting Friday afternoon’s bias environment back above a prior high can be vulnerable to a short-squeeze into the close. It took awhile and several attempts, but 1154.25 finally triggered a 10-point surge. That reacted down in a 15-point plunge.

1161.00 had been the rally’s next higher objective above 1143.50. It was attacked to within 2 ticks Thursday. A close above it Friday could not have been easier. Yet 1161.00 resistance held two separate, prominent probes, and also closed negative. So, Friday’s buyers gained no traction for their efforts.

Sellers didn’t gain traction either — closing under 1143.50, not above it, would have signaled momentum already reversing down. Maintaining a break beyond either end of Friday’s 1144.00-1165.00 range is likely to extend in that direction.

[/pay]What’s Next… (Outlook and opportunities)[pay]
A relief rally after no weekend default would run into difficulty at Friday’s 1173.75 pre-open high. Rejecting its test early could reverse down sharply. But not rejecting its test — not trending down under Friday’s lows, would likely resolve up.[/pay]

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.