Trading Plan for 10/2
[pay]Pattern notes.
The mid-afternoon pattern’s template had predicted the potential for trading higher, but not permanently, and then only after grinding higher. Well, S&Ps firmed to ESz 1174’00, slightly higher new session highs for Wednesday, four hours after the cash session close. The Senate just started voting, and S&Ps are backing off almost 5 points.
Wednesday’s gap open under Tuesday afternoon’s last relative low makes me suspect that the gap down’s recovery wasn’t very sincere. A gap open Thursday above Tuesday’s 1175’75 high would get a benefit of the doubt for being able to recover from immediate selling pressure. But gapping up and running higher without correction doesn’t happen often in this pattern – at least, not without serious repercussions before extending too high for too long.
The alternative outcome would be for Thursday’s open to gap down under the afternoon’s 1153’00-1155’00 low. That’s where Buffet’s GE news saved the market from resuming the decline. The news was surprising, but the type of news shouldn’t be. The SEC extended the short-selling ban another two weeks, which also shouldn’t be surprising. Rallies shouldn’t last when they’re sparked by news that shouldn’t be surprising. If this alternative outcome plays out, then S&Ps will quickly retest Wednesday’s low. And retesting Wednesday’s low this soon would almost certainly put into play a retest of Monday’s low, too.
Indicators and Internals.
Wednesday’s internal spreads were essentially even with each other. During a sustainable rally I would expect to see signs of accumulation after recovering all of a gap down. Instead it appears that the intraday recovery may have only refueled sellers.
Thursday’s opportunities.
Several interesting data points are revealed Thursday morning. Several econ reports whose focus is mostly on employment, shared with ECB interest rate news. Senate passage of the bailout bill is almost as likely as the sun rising in the East again. A rally on passage of the bill – if only a relief rally – is fourth or fifth on the list of likelihoods. It follows this one: Look out below if the Senate votes yes, but the market doesn’t rally. I’ll be in the charting room overnight to see how the reaction is going.[/pay]