Trading Plan for 10/21
[pay]Pattern notes.
Friday’s gap up extended sharply higher to ESz 970’00, then back down to 943’00. That’s a lot of selling pressure, but it never reached negative territory. The balance of the session trended up, with the afternoon’s mid-section repeatedly probing away at tests of the morning’s 970’00 high. The probing was ineffectual until the last half-hour, when the 3:20-3:30 timing window had just shut on sellers being able to retake control.
Inappropriately timed dips left a void that sucked in buyers for a surge up to 992’00. The 59-point gain probed Friday’s high, but only thanks to a short-squeeze after the cash session close. Monday’s cash session was an inside day contained within Friday’s range – actually, within Friday afternoon’s range.
Trending on inside days tends to be in the wrong direction. Monday’s rally stayed alive not by the strength of its buyers, but by the weaknesses of its sellers. The open’s gap up, the mid-morning plunge that remained in positive territory, the otherwise session-long uptrend, five distinct intraday uplegs, and a post-close short-squeeze – all optimism. Ineffectual at first, and excessive at last. The only thing it produced on the chart not already there one day earlier was not even produced until after the close.
If sellers don’t immediately retake control at Tuesday’s open, then Monday’s rally could extend sharply higher before finally dropping back to recent lows. But extending Monday’s rally would neutralize unfinished business above. And that magnetic attraction above would be helpful to start a real bull market after retesting 837’00 below. So it is very important for the purpose of creating a durable bottom that Monday’s rally not be durable at all.
Indicators and Internals.
3-minute RSI was overbought at Monday’s second-to-last minute high, after the cash session close. A 4-point dip recovered to a very last-minute higher high where RSI was lower. Still overbought, but a lower overbought. Meanwhile, 7 times more NYSE up volume than down volume produced 5 times more advancing issues than decliners, so it cannot be said that the market is running short of sellers.
Tuesday’s opportunities.
Two retail sales metrics are due before Tuesday’s open, and Investor Confidence afterwards. I don’t think any of these can derail any initial trending underway, whether that is extending Monday’s rally or revering it. Friday’s close is not an anomaly, and the attraction back to it is the lens through which I’ll view any selling effort Tuesday. [/pay]