Trading Plan for 10/21

Tuesday afternoon’s bottoming didn’t gain much traction before its close. But Wednesday’s open extended much higher. The only question is, why? The morning’s rally didn’t improve that afternoon, nor has it been rejected. There’s a delayed reaction coming, and those tend to be aggressive.[pay]

Pattern points… (Setups and technicals)
Wednesday morning’s rally came early, its slope was steep steep and its gains were substantial. That’s a lot of optimism, especially considering that its peak during the noon hour wasn’t followed by a downleg before the close.

The selling into Wednesday’s close does not qualify as a downleg. The new session high at 1180.00 was the minimum target of a small pattern that formed after the Beige Book reaction. No distribution pattern formed after reaching the target. In fact, 1180.00 barely probed the noon hour’s 1179.25 high before reversing down. The selling did “trend” down in a series of lower lows  and lower highs, but only to probe the range’s lower-end.

There was an element of pessimism to Wednesday afternoon’s range. Its upper-end peaked just 1 point below filling the gap back to Monday’s 1181.00 cash session close. The gap was created when Tuesday opened under Monday’s intraday low, so it doesn’t require being filled. But it’s always suspicious when price travels so far and comes so close to an attraction without retesting it, especially after spending so long hovering just below it.

What’s Next… (Outlook and opportunities)
Wednesday ended by probing fresh afternoon lows down to 1173.25. Bars were still overlapping the afternoon range’s 1175.00 lower-end. So, (deep breath,) late sellers – reacting down from only a test of the range’s upper-end – were able to probe the range’s lower-end, without breaking lower.

This is despite a steep morning rally, and after hovering just under an open gap without bothering to fill it, (another breath,) which might reflect pessimism that can be bullish from a contrarian perspective.

Sponsorship for a downleg must do better than that to gain traction. It can. Perhaps after probing new highs above 1182.25, or just by sliding back under 1168.00 through a relevant timing window. Thursday morning’s econ calendar could wreak that kind of havoc on the early going.

Otherwise, absent a significant early drop, Thursday morning is likelier to probe the highs. And gapping up above 1179.50-1180.00 could lead to a session-long rally. [/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.