Trading Plan for 10/22

Methinks thou doth not protest enough… Buyers had two opportunities Thursday to lift this market out of its recent range. The open’s gap up didn’t extend immediately, and the afternoon’s trapped shorts weren’t squeezed. If they can’t get it together during the week, then it would be surprising to suddenly find sponsorship right before the weekend.[pay]

Pattern points… (Setups and technicals)
Thursday afternoon’s drop originated after the timing window had already signaled no-bias. The drop’s sponsorship was therefore weak hands, predictably unable to maintain their effort. Their effort was retraced entirely, neutralizing the attraction above.

Trapped weak hands could have been squeezed to trigger a recovery back above the drop’s origin. They weren’t. So, the afternoon’s bounce only prevented sellers from gaining traction, but did not exploit the trapped shorts for buyers to gain traction.

Failing to complete a setup tends to be a contrary signal. This is similar to the morning’s failed gap up setup, which did not immediately extend higher to complete a bullish pattern. The setup became bearish for having expended the buying energy ineffectually. The inverse happened at Tuesday’s low, which threatened a trend reversal by probing the prior relative low. It recovered through the close, and that recovery eventually produced a new high.

Sellers did not gain traction either, similar to Wednesday afternoon’s sell-off. Sellers may need another early failed rally to kick-start a downleg. Thursday’s rally needed to fail from new highs above 1182.00, but the next one can reverse down sharply from probing only 1180.00.

This being a Friday, breakouts are unlikely. A new high intraday would be likely to fail before teh close. A new high close would be likely to fail Monday after trying to extend a little higher first. But no new high is required, not even intraday.

Thanks to Thursday’s new intraday high, Tuesday’s 1155.50 low is the new “prior relative low.” This replaces last Thursday’s 1162.50 low. Now there is 7 extra points of selling pressure to expend before signaling the trend has reversed down.

What’s Next… (Outlook and opportunities)
Thursday’s close was somewhat at equilibrium, having fulfilled its unfinished business (retracing the no-bias trending) without creating any new objectives. So, trending will be difficult to restart, but trending attempts will be hard to stop.

I tend to give sellers a benefit of the doubt since buyers failed twice Thursday to exploit different opportunities. That said, just how productive sellers can be is another question. This being a Friday, the morning’s bias signal is likely to persist through the noon hour. Trending early – or not – could define the day.[/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.