Trading Plan for 10/16

If that”s capitulation… then this is going to be awhile. Not that capitulation would allow a new rally to new highs to just get up and walk out of here with a few scratches. But capitulation would end the decline. Rallying already, from this stage and from this level, would only refuel sellers.

Pattern points… (Setups and technicals)
Good news / Bad news… The decline”s next lower target at 1824.50 was recovered through Wednesday”s close. That”s actually the bad news. Closing under it would not have been bullish, but it could have become bullish by closing Thursday back above the morning”s 1860.75 high. That setup can”t happen now.

And since Wednesday”s actual low was a test of the 1813.50 room for noise under 1824.50, closing back under 1824.50 would make new lows only a formality. The next lower target would be 1766.00.

My template was looking for the 1824.50/1813.50 low. It was looking for the bounce, and it was looking for the bounce to be only a temporary correction up to 1840.00. Two out of three?

Extending not only above 1840.00 but also to test the morning”s 1860.75 high was unexpected. It still may be only a temporary correction — the afternoon”s recovery came nowhere near positive territory. But the template was looking for fresh session lows.

Slightly higher highs overnight or Thursday morning could test 1872.50 first. Gapping up that high could form an Island Reversal. Perhaps Wednesday afternoon”s rally will be only a duplicate of last Wednesday afternoon”s rally (in reaction to FOMC news), and reverse down immediately Thursday. 

What”s Next… (Outlook and opportunities)
Thursday”s econ calendar is like a clown, packed with high-profile reports and Fed speaker after Fed speaker. Those clowns are our insurance against a narrowly ranging session.