Trading Plan for 10/21

[pay]Pattern notes.
Tuesday morning’s series of dips were inappropriately timed and yet none was rejected. In fact, another big drop fell much further into the noon hour, probing lower prior highs under 1086.00. That leg’s 1082.00 low filled the gap back to Friday’s futures close, and also held a touch of the afternoon’s bias-down signal.

A recovery maintained back above 1086.00 might not have lasted the day, but it would have been productive. But it wasn’t even probed until a no-bias environment was in place. Despite the open’s inappropriate timing and despite neutralizing so many attractions below, sponsorship for a recovery never developed. What more could they want?

It’s not that Tuesday’s absence of buyers was surprising. Disappointment over the morning’s failed rally attempts was expected to produce an afternoon sell-off. Indeed, NDX tracked this template. Regardless of whether S&Ps spent the afternoon in decline, the afternoon did not recover any relevant area.

Just closing negative on the day is already well in-line with the rally having ended. A close under 1082.00 would have made clear that momentum had reversed down. Unless Wednesday’s open were to start from above 1091.50, bounces would be likely to fail. Filling the gap back down to last Tuesday’s close below 1070.00 might end sufficiently refuel buyers, but it’s more likely to attract bigger selling sponsorship.

Indicators and Internals.
The positive divergence at Tuesday’s noon hour low wasn’t very pronounced. But it was a divergence. So it produced a bounce, but not a very productive one. That is, not very productive except for preventing sellers from regaining traction. Interestingly, RSIs became neither overbought nor oversold through the balance of the day, leaving no unfinished business.

Wednesday’s opportunities.
Besides another busy day of quarterly earnings reports, the session has the 2:00 Beige Book to look forward to. That might inject a lot of volatility into an otherwise slow afternoon, before slowing down again ahead of post-close earnings. Since the session trended up into the close, gapping down under the afternoon’s 1083.50 low would signal a session-long decline. Otherwise, a gap up above 1091.50 is needed to consider buyers even trying to retake control.[/pay]