Trading Plan for 10/26

[pay]Pattern notes.
Friday’s pattern was exceptional in two ways. First, it showed that sellers can retake control without first retesting an overnight high that was above the prior session’s range. Then it showed that a session-long decline can occur without there being a session-long decline setup.

Opposite outcomes were likely – not setups, just likelihoods. In the chartroom I try to emphasize that likelihoods can have exceptions, which is why they’re only likelihoods. Admittedly, I can stress this to the point of distraction, but it is very often just an asterisk. If exceptions and asterisks come in threes, then there are two possibilities.

– Opening gap. Not just by a couple of ticks or by a couple of points, but beyond a relevant prior high or prior low. Friday’s last three hours ranged sideways, which doesn’t often create pent-up buying or selling pressure. And the ranging was more about pushes off of a central point, and less about moving from one end of the range to the other. Another reaction back to the middle will be considered if the open is a quick move or gap to a relevant prior high or prior low.

– Session-long trending. Friday’s last action was to firm, and the afternoon’s low printed during the last half-hour. My session-long trending setup isn’t in-play, but neither was it in-play Friday. However, Friday’s session trended throughout (defined by the last hour’s new session low, despite being part of a three-hour range), so Monday’s session is equally vulnerable.

Friday morning’s 1075.75 low was being touched again at at the 4:00 cash session close. The sideways trending actually began then at 11:22, so its duration can be defined as almost five hours instead of just three. Note the time stamp, when the morning’s bias-down was about to start lapsing. Sellers are more credible than buyers, despite not maintaining lower lows in the interim, because buyers didn’t exploit that period when sellers didn’t improve their own position.

Thursday refueled sellers up to (and through) the bounce target, those sellers regained position into Friday’s close, and only brittle support lies below. More than a week of ranging off of new highs has failed to resume the rally, threatening to reverse the trend down.

Buyers might yet make another stab at resuming the rally, given all that is at stake here. And given how much proof sellers have delivered already, buyers must be overwhelming if they are to be believed at all.

Indicators and Internals.
RSI will be relevant to assessing the quality of a prior high or prior low’s retest. Friday’s mid-afternoon positive divergence did produce the minimum required 61.8% bounce before probing fresh session lows. Had technicals improved in the interim, then another bounce might have been indicated. Instead, a lower low wouldn’t be required to recover.

Monday’s opportunities.
The relevant prior high and prior low described above are Friday’s noon hour ~1082.00 high above, and Thursday’s ~1070.00 opening low below. An extended bounce would have room up to 1088.00 before considering its purpose to be anything more than refueling sellers, again. Above 1093.50-1094.50 would put into play 1107.00. Under 1068.00-1070.00 would target 1063.00, and then 1054.00. The econ calendar is empty and quarterly earnings aren’t high-profile. [/pay]