Trading Plan for 10/2
[pay]Pattern notes.
Last week’s drop ended Friday. Those lows were broken Thursday, which was the fourth quarter’s first trading day. It’s almost as if the interim strength were motivated by end-o’quarter portfolio window dressing. That’s interesting, because we already established last week that the Labor Day rally was tied to quarterly expiration.
More recent has been a drop since Tuesday morning’s high. Was that just discounting fears ahead of Friday’s Employment Situation report? Thursday morning’s jobs reports and their negative preceded some afternoon downward revisions among estimates, and that accompanied prices falling into the close.
Thursday’s drop met this leg’s 1030.00 target coming out of the noon hour, satisfying a lot of longer-term selling pressure. Its test produced a bounce and was retested as support. It was eventually broken, but not until the final minutes that often reflect wrong-way weak hands. The last-minute dive bottomed upon testing the afternoon’s 1024.75 bias-down target, satisfying a lot of near-term selling pressure. Either the last-minute drop discounted enough bad news to absorb it, or the revisions were too little, too late.
Indicators and Internals.
RSIs were oversold at Thursday’s last-minute low. This timing is so late that it tends to reflect weak hands, instead of identifying an extreme that is attracting weak hands. So, an immediate bounce would have no near-term requirement to retest Thursday’s low.
Friday’s opportunities.
Maintaining a gap up above 1034.00 would be the cleanest signal that momentum was reversing up for a sizable corrective bounce. Almost any shallower opening strength would likely be only temporary, probably very temporary, and vulnerable to reversing down sharply.
In lieu of gapping up high enough, perhaps the only way to avoid dropping sharply through the morning would be to gap down sharply at the open, sharply enough to attract new buyers. Of course, this risks attracting new sellers that suddenly grasp the trend reversal and fear the weekend’s oncoming illiquidity.
The Employment Situation report will be followed by Factory Orders at 10:00. PMI and ISM weren’t without some controversy this week, so the market may be in for one last surprise. This being a Friday, the morning’s bias signal is likely to persist well past the noon hour. [/pay]