Trading Plan for 10/26

Tuesday morning’s plunge… was an excellent example of a market getting ahead of itself. It was an excellent example of a market absorbing a shock to the system. Of their many lessons, one was that these factors can lead to a choppy session.So, it was, unfortunately, an excellent example of both.

Pattern points… (Setups and technicals)[pay]
Oversold RSIs at the morning’s 1227.50 low had required a retest. It could have been retested that morning — during the same timing window — and held as support to launch a rally. Instead, time passed while impatient buyers became trapped to help fuel a bigger downleg.

We discussed several intraday indications that buyers weren’t gaining traction for their efforts, despite making those efforts. Their contribution to the bearish cause went only so far, as the 1222.25 low held for a close at 1225.00. Closing any lower could have merited holding short through the close.

Nothing is preventing the decline from extending down overnight, and sharply. But nothing is preventing a bounce, first, either. So long as bounces now hold 1230.25 and 1232.50, at some stage 1217.00 should be tested. Under 1213.00 would suggest the decline’s pace was accelerating.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Having missed an opportunity for a second consecutive close above the rally’s 1245.00  objective, there is now potential for reversing the trend down. Two consecutive closes under 1221.25 would make a complete, eventual retracement back down to 1068.00 only a formality. A bigger multi-session bounce could still develop. [/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.