Trading Plan for 10/4
Hold short through the close?… Monday afternoon’s pattern offered that rare setup, and needed only to avoid closing above 1106.00-1107.00. A late drop from there ended the cash session at 1092.75, and futures then fell to 1085.25. Did that confirm the setup, or already fulfill it?[pay]
Pattern points… (Setups and technicals)
The first of three near-term bearish factors is Monday’s close below the morning’s lows. The late 22-point dive did nothing different from the afternoon’s bias environment. It got ahead of itself only if Tuesday’s open gaps up above Monday afternoon’s prior lows (~1096.75). Otherwise, the second consecutive lower close now requires at least a third lower close, usually the following day.
The second near-term bearish factor is RSIs. Both 1-minute and 3-minute RSIs avoided oversold territory at the cash session close. Each did become oversold as futures extended the drop, but that was too late to qualify as expending near-term selling pressure.
Finally, the third near-term factor is based on a bigger picture pattern discovered by one Dr. Pavlov. He is famous, of course, for conditioning dogs to salivate at the sound of a bell by ringing it at feeding time. In our current application, the market is the dogs. Nothing personal.
The bell has been rung four times since last Tuesday. Except for Friday’s gap down, each open has rallied and each afternoon has sold-off. There are differences among them — Tuesday’s reversal never touched negative territory, and Thursday’s reversal still recovered to closed positive. Wednesday and Monday were the most obvious.
And now the impending Pavlovian response to the next bell — or one not too distant — will skip directly to salivating, i.e. selling-off, probably quite a bit overnight.
What’s Next… (Outlook and opportunities)
The greatest caveat to being bearish near-term, apart from already having expended so much selling pressure, is the ongoing risk of detouring upward on outside intervention. Otherwise, the retest of August’s crash lows is fulfilling expectations, and seems poised to further fulfill expectations for extending even lower. [/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.