Trading Plan for 10/29

[pay]Pattern notes.
Recently the market forest has been thinning itself naturally. It’s a delicate process as the environment absorbs decaying vegetation. At one stage the environment becomes a tinderbox. It only takes one careless camper to ignite blaze, destroying both the decaying flora and the very environment that was absorbing it.

I described a similar process underway in yesterday’s Trading Plan and Morning Market Tour. Gargantuan drops were being largely retraced, absorbing bearish fauna while the market changed seasons (from Fall, get it?). Then someone lit a match, igniting a 2-hour, 80-point, 9.5% rally.

With one big exception, Tuesday afternoon’s slope and degree were exactly how I described the next meaningful rally would begin. The exception was its origin – the rally needed to come from a new low, and not a minor one. The scarier, the better. But instead of swallowing pessimism whole, Tuesday’s surge sucked all of the environment’s optimistic oxygen.

The origin can make all the difference between a durable rally, and a corrective bounce. This one might extend a little further without reversing the trend to up, back up to the last downleg’s origin another 50 points higher at ESz 987’00-990’00. That’s where the market can make a bigger decision about extending its bear market rally higher, or else extending the bear market down to its outstanding 787’00-790’00 target.

Indicators and Internals.
MACD never really extended itself during Tuesday’s surge. The 3-minute RSI meanwhile became overbought and stayed overbought. That makes the surge’s high likely to be retested after an overnight pullback.

Wednesday’s opportunities.
Nervousness ahead of Wednesday afternoon’s 2:15pm FOMC announcement is already facilitating an overnight dip. The pre-FOMC anxiousness should inhibit sellers from regaining control just yet. Around 1:30am in the charting room I noted a buy signal above 922’25 targeting 929’25 and 935’75, which has so far reached 933’50. Durable Goods is due at 8:30am. Regardless of this bounce’s outcome, I’ll expect almost any pre-open pullback to largely recover, eventually entirely. [/pay]