Trading Plan for 10/3

If Wednesday morning’s drop had lasted any longer… then Wednesday’s rally would have been much higher. Since Wednesday’s rally wasn’t any higher, it might have been only a corrective bounce. That’s an important question and it should be answered by noon Thursday.

Pattern points… (Setups and technicals)[pay]
Two consecutive afternoons have failed their attempts to reverse momentum down. Wednesday was the better effort, dipping back to two prior lows, but not lower when it mattered. That doesn’t prevent intraday sell-offs, but it limits their ability to damage the chart. A downleg would have to be very powerful to do anything more than just retest Monday’s 1666.75 low.

That’s in-line with expectations for retesting Monday’s low by only by a couple of points. Of course, expectations were also for Wednesday’s drop to extend into retesting Monday’s low, where a gargantuan rally could be launched. Rallying prematurely prevented reaching levels more attractive to stronger buyers.

Extending higher without delay Thursday and holding up through the bias environment would at least marginalize sellers into Friday afternoon. A gargantuan rally may be off the table. Rejecting early gains Thursday, or simply sliding without delay, would again target a retest of Monday’s low. If tested any deeper than  a couple of points, then it could be tested much, much deeper than that.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Be mindful of the headline risk. The longer the shutdown, the closer to its resolution. The closer to its resolution, the more believers in rumors of its resolution. Similarly, the longer the shutdown, the more it is already discounted in price. And the more it is already discounted in price, the more upside reaction when all of those believers buy on the rumor of its resolution.[/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.