Trading Plan for 10/14
[pay]Pattern notes.
Despite Monday’s 1068.00 low giving way quickly at Tuesday’s open, it wasn’t by gapping down under it. This invalidated the session-long decline setup that had formed. A session-long decline still could have formed, but it wasn’t likely since an optimal setup was just ignored. This made the drop likelier to bounce at its earliest opportunity. That opportunity arrived upon probing Thursday and Friday’s “lower prior highs” under 1065.00.
A big bounce into the noon hour filled the gap back to Monday’s close. Despite the big bounce, and despite it retracing all of the morning’s drop, there was no further improvement intraday. Just as sellers had ignored their own optimal setup at the open, buyers didn’t exploit their own. The afternoon’s range, despite being relatively wide, was only noise.
The open’s dip wasn’t noise. It is considered relevant because its low didn’t form until testing a relevant landmark (Thursday and Friday’s lower prior highs). The bounce it produced was noise, because it didn’t recover back above another relevant landmark. Tuesday’s sellers were more productive than buyers.
That’s not a sell signal, but it raises the bar on what would constitute a buy signal. If breaking above Tuesday morning’s 1072.00 high would have sufficed that afternoon, then nothing short of the prior high would suffice the following day. The prior high was Monday afternoon’s 1075.25 high, and it is being tested by the initial reaction to INTC’s earnings.
Indicators and Internals.
RSIs were oversold at Tuesday’s low, requiring its retest. It also increased the vulnerability to a bounce. Tuesday’s post-open gains on INTC’s news doesn’t change the requirement to eventually retest Tuesday morning’s lows. It just makes that retest unlikely to hold as support.
Wednesday’s opportunities.
Monday afternoon’s 1075.25 high was being tested by the initial reaction to INTC’s earning’s. Testing Monday afternoon’s highs as resistance raises the pullback limit to Monday afternoon’s 1073.50 lows. Exceeding 1075.25 through a relevant timing window would trigger a rally leg initially targeting 1081.75. Opening Wednesday back under Tuesday’s 1072.00 highs would reject all of the trading above it as if it had never happened. And it would reverse momentum down.[/pay]