Trading Plan for 10/18

The daily Trading Plan takes a slightly new format beginning this week that incorporates many comments received. It should prove to be a faster read for us to get on the same page regarding where the market is, where it may be going, and how to try positioning for it.

[pay]Thursday’s rejection of Wednesday’s trending attempt limited Friday’s expiration to a trading range. But that ranging contained multiple instances of excessive optimism. And it left multiple instances of unfinished business below. First things, first, as expiration still has influence on Monday morning’s price action…

Pattern Points… (Setups and technicals)
Excessive optimism may look like it first appeared at the open, which gapped up 5 points to 1178.25. But that was relative to Thursday’s 1173.25 futures close. Thursday’s cash session close equated to 1370.50. This exercise was repeated after Friday’s close, which tacked on 2 points to 1175.00.

Interim evidence of excessive optimism came at the morning’s low. A reaction down from almost 1180.00 during just one hour earlier ended suddenly at 1163.00. Impatient buyers couldn’t wait another 2 ticks to touch Thursday’s late-afternoon low, let alone probe it.

RSIs were oversold at the low, both 1-minute and 3-minute simultaneously. This means the drop’s sponsorship was strong hands, leaving only weak hands available to sponsor the bounce. That dooms the bounce to failure, and requires a retest of the session’s 1163.00 low.

Thursday and Friday’s lows have been chipping away at the natural support of Monday’s ~1164.00 “lower prior high.” The first test is neither required nor predictive. But a retest typically means a deeper probe is coming.

What’s Next… (Outlook and opportunities)
The character of expiration’s price action is often duplicated Monday morning. Excessive optimism would be defined as breaking above 1178.00, with potential to 1185.00.

Whether reacting down from any initial surge, or simply opening weaker, maintaining a break under 1170.00 would target 1164.00. But its support would be obligatory, again, and its eventual break would likely test Tuesday morning’s 1151.75 last relative low.

Closing below there would be the first signal that trend is reversing down. Until then, the trend remains up, so intraday dips remain vulnerable to recovery.

[/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.