Trading Plan for 10/16
[pay]Pattern notes.
There’s more than one way to skin a cat. They’re all pretty messy. We’ve grown accustomed to stages of the decline ignoring RSI’s positive divergences. Two or three of those in a row have alerted us to much greater selling pressure coming down the pipeline. The past week has seen several instances that are a different side of the same coin, when sellers earn the freedom to allow a bounce, but plow lower without delay.
Each scenario reflects pessimism that isn’t excessive, but very effectual. The last two opens have exhibited this trait, and each resulted in big losing sessions. Wednesday night’s Globex session has already dropped 19 points further, indicating a gap down back into last Friday’s range. Now, that’s pessimism.
Since this week’s corrective bounce never recovered the last downleg’s origin, the current drop back to the lows is part of the same leg. Its pessimism is the same pessimism. Hard to believe after a 230-point rally that has been retraced 180 points. Retesting Friday’s ESz 837’00 low in this environment could form a substantial bottom, assuming the low is probed more deeply than several points. Momentum could reverse up if the probe were recovered that day, and then again the next morning after another probe of prior lows.
If Thursday’s open does drop, only to stop and pop, then buyers would still be too optimistic and impatient for this to be a bottom. It might be a low that launches a bounce, but that’s a tough sell to market participants that just saw big failures after Monday’s rally and Tuesday afternoon’s surge.
Indicators and Internals.
Technicals made higher lows at the Globex session’s first low. The bounce from was retraced almost entirely, until 3-minute RSI became oversold again. This second low is so far only a retest of the prior low, so its RSI reading isn’t enough to doom bounces to failure. But the pattern points lower, which would reject two consecutive favorable RSI readings. And that would suggest much greater selling pressure coming down the pipeline.
Thursday’s opportunities.
Several high-profile econ reports come out through Thursday morning. Earnings, too. They haven’t been atrocious, which is a different narrative than being spun by the drop. So a premature bottoming attempt from slightly negative territory wouldn’t be surprising. Regardless, the trend remains down.[/pay]