Trading Plan for 10/15

[pay]Pattern notes.
After-hours earnings excitement is my main suspect for having saved the afternoon’s drop from extending down further. The last hour’s 37-point from the ESz 974’25 low wasn’t otherwise meant to be. It was a corrective bounce, meant to refuel sellers.

Several factors made this clear, such as the 1-minute RSI diverging negatively into the bounce’s high, and its peak upon probing 61.8% back into the afternoon’s prior swing. Oh, and the 22-point tumble to 980’00 around 7:00pm was a dead giveaway.

That tumble might also refuel buyers. The 13-point reaction needs to fail and fall to new session lows under 977’50 for a second downleg targeting 971’50. That’s not much of a second downleg, but it would pierce Tuesday’s cash session lows and almost put into play 952’00 and 900’00.

If this leg does not develop further, and recovers instead, sellers will have lost an opportunity to exploit the top they sealed at 10:15 Tuesday morning. The optimistic pre-open surge was already in retreat at the cash session open – but not before peaking at a 61.8% extension from Monday night’s last pullback. The retreat extended down under the two tops’ interim low through the opening sequence’s 10:15 timing window.

Having sealed the top, sellers had an excuse to bounce before extending lower, but they did not. If they can maintain their pace, the opportunity to exploit the sealed top could develop into retracing the larger corrective bounce from Friday’s low. If buyers gain traction instead, the corrective bounce could begin an entirely new leg to entirely new corrective bounce highs.

Indicators and Internals.
The 3-minute RSI was at its deepest oversold level when S&Ps tumbled to 980’00. The Globex timing doesn’t require the low’s retest, but it is likelier than not.

Wednesday’s opportunities.
Several econ reports should spice up the morning, as if the quarterly earnings onslaught won’t already have enhanced volatility. Beige Book is due at 2:00 and usually heats things up; this report is on September activity, so its response might be brief or muted. But if Wednesday’s open gaps under Tuesday’s 974’50 low, all of these items should prove to be catalysts for further declines.[/pay]