Trading Plan for 10/24
*Be sure to read the Programming Note at the bottom.
[pay]Pattern notes.
Wednesday’s “V” bottom at ESz 872’50 required a retest, despite the 40-point recovery into the Globex open. And despite extending that to 50 points overnight, S&Ps were within 10 points of Wednesday’s low before Thursday’s open. Two bounces later – one of which pierced the 922’50 overnight high – a third sell-off was underway.
The third time was a charm, but not so charming. This leg fell to 856’00, fulfilling two outstanding retests, both Wednesday’s low and last Thursday’s. There’s a third outstanding retest, the two-week old actual low at 837’00. That would have been charming, and the pattern could have extended down another 50-60 point after bouncing to 880’00. The bounce limit held its test, its first test, but the next 50-60 points traded up instead.
Surely two near-tests of the low should qualify as a single complete test, yes? No. There was no reason for last Thursday’s low to retrace so much of its large interim bounce, not unless the low’s eventual break is likely. And there was no reason for this Thursday’s low to come even closer without the same end in mind. Apparently the support is so substantial that it requires some substantial chipping away.
The overall pattern doesn’t change, not meaningfully. It is still a triangle, pointing to new lows temporarily. The new lows are meaningful, too, but there’s still a couple of templates that allow a recovery from new lows to form a tremendous rally. There’s a third template that doesn’t. It would be invoked by Thursday’s rally extending through Friday, refueling sellers and optimism, instead of resuming the decline without delay.
Indicators and Internals.
NYSE down volume was 22% greater than up volume, but it produced 66% more declining issues than advancers. The negative spreads alone are a negative divergence from the session’s positive close. The lopsided ratio between them reflects sellers being much more productive than buyers, and more likely to be rewarded Friday. Last-minute negative divergence in the 1-minute MACD & RSI already warns of that, as well.
Friday’s opportunities.
This being a Friday, the morning’s bias is likely to persist well past the noon hour. The only econ report is Existing Home Sales due at 10:00. Gapping under 900’00 would be more likely to extend down to the 880’00 area. A runaway rally isn’t likely without gapping up above Thursday’s 923’00 area highs.
*PROGRAMMING NOTE: I will not update the blog Friday afternoon. I will be in the charting room until noon only.[/pay]