Trading Plan for 10/17

Now, that’s cutting it close… The rally’s next higher objective at 1222.00 was attacked to within 3 ticks after Friday’s close. It was well-deserved, having recovered from a late 6-point dip to 1214.00, and from the morning’s 10-point dip to 1207.00. Nothing pessimistic there — and that’s the problem.

Pattern points… (Setups and technicals)[pay]
Friday’s post-open dip was an excellent case study of the benefit to identifying weak-handed sponsorship. The dip eventually probed under the key 1209.00 bias support. The tests originated too late to be strong hands, so 1209.00 ultimately held.

But that’s not the lesson.

More important is what happens after weak hands have finished trying, after they have failed. Recall that holding 1209.00‘s test kept alive potential for reversing back up to test 1221.25-1222.00. Strong hands did not have to retake control. The failed sell-off simply created a void to gravitate higher.

Friday’s actual high was 1221.50. This was a post-close retest of 1220.00‘s prior high that had printed a half-hour earlier. Between the two highs was a dip to 1214.00. That’s a 13-point round-trip in 30 minutes. Nothing pessimistic there.

And that’s the rally’s problem.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Or, part of its problem. Two other parts are technicals (RSIs diverged negatively into the close) and price (fulfilling the 1221.25-1222.00 objective). The rally’s non-problem is timing. New high closes on Friday’s very rarely reverse down immediately. At least, not durably.

After trending up into Friday’s close, Monday’s open gapping down under Friday afternoon’s 1210.25 low would trigger a “session-long decline.” Any shallower pullback would likely recover to probe higher highs, next targeting 1228.00 intraday. Closing any higher could put into play 1245.00. [/pay]

Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.