Trading Plan for 10/25

If neutralizing one attraction were a pattern… then the next lower attraction should be neutralized soon, too. Unfortunately, failing to bottom from that first attraction would mean the second attraction won’t launch a recovery either. Therefore, be very cautious before getting too bullish too quickly.

Pattern points… (Setups and technicals)[pay]
Oversold RSIs at Tuesday’s 1402.00 low required a retest. It was fulfilled during Wednesday’s last half-hour. Grudgingly. Reaction to the afternoon’s FOMC announcement was choppy backing-and-filling that nevertheless trended downward.

One attraction below neutralized. One to go.

The eventual test of the 1400.00 area remains outstanding. It could have been satisfied at 1402.00 if its test were not the first downleg into the area. Instead, a probe under 1400.00 is likely, presumably by 2-3 points.

Nothing seems to be standing in its way.

Attacking 1402.00 produced two reactions up, and finally piercing 1402.00 also produced a reaction up. That was misplaced optimism. A deeper probe is required before any bounce would be credible for gaining traction. RSIs refusing to get oversold during Wednesday afternoon’s drop reflect a lack of sponsorship. That makes the drop easier to absorb and to reverse up from its objective. Meanwhile, it also makes the objective more difficult to reach.

A big enough gap up is always able to reverse near-term direction. But near-term direction remains down, with a big attraction just a little lower.

[/pay]What’s Next… (Outlook and opportunities)[pay]
An overnight dip to fresh lows under 1400.00 would not require retest intraday if Thursday’s open recovered 1402.00 and preferably also 1407.50. (I had included 1405.50 in that list during the Market Tour, but futures recovered to close there, which neutralizes its predictive aspect.) There is no requirement for any fresh low to hold, let alone to produce a bounce or recovery. Just a bigger picture that has long expected it. [/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.