Trading Plan for 10/16
[pay]Pattern notes.
Entering the session’s last hour at new highs doesn’t often reverse. Sponsorship is attracted to opportunity, and that’s limited when time is limited; so is the ability to work out of a bad entry. Anyway, the last day of the week isn’t much different.
The last day of this week is being entered at new highs. Trending higher Friday through 1096.00 would next target 1114.00-1117.00. Sellers have several opportunities to retake control…
– Buyers might already be done. Thursday’s upside potential was lured higher by the outstanding target at 1090.75. The target was met. Twice. Price can drop simply because buyers have been satisfied, and their sponsorship disappears.
– Buyers might get done fast. Thursday’s last half-hour avoided dipping back under 1088.00, so the rally could still extend a little further up to 1096.00. The air is a little thinner air up there, and a disappointing 9:55 econ report can suck the last remaining oxygen out of the atmosphere.
– Buyers might get scared off. Thursday’s problems were caused by negative reactions to high-profile earnings. Disappointments from BAC or GE before Friday’s open could turn Thursday’s recovery into ballast.
An early drop might mean buyers had lost traction, but not necessarily that sellers were gaining it. Downtrends help those that help themselves, so a drop could be only temporary without also breaking under prior lows. If sellers don’t take advantage of an opportunity to retake control, then the market will suck in buyers to fill the void. The limited time left before the weekend would be off-set by the evidence that sellers weren’t a threat.
Had Wednesday’s breakout been confirmed Thursday, then the potential for reversing down Friday would be negligible. But Thursday’s last hour was still ranging around Wednesday’s highs, instead of breaking it cleanly. This doesn’t mean Wednesday’s session wasn’t a breakout, simply that it wasn’t confirmed, and that the door is open to trend either way Friday.
Indicators and Internals.
Positive divergences were at work again through Thursday’s open to anticipate a recovery. Negative divergences at Thursday’s close suggested the opposite, but lacked credibility for their late timing. It’s not a buy signal, but at least it wouldn’t undermine the credibility of an attempt to extend higher at Friday’s open.
Friday’s opportunities.
Quarterly earnings continue to be a wild card. Even after the open, Consumer Sentiment at 9:55 will still have something to say. Just gapping down under 1088.00 would rob buyers of any remaining traction, but sellers don’t regain control without a solid break under 1082.00-1084.00. Sellers can gain traction higher, by rejecting a probe above Thursday’s 1093.25 post-close high to back under 1088.00. Otherwise, even if just by remaining aloft through late afternoon, the rally could still extend higher into the close. [/pay]