Trading Plan for 10/7
[pay]Pattern notes.
Tuesday’s session tracked the expected path – trending up through the open, avoiding a sell-off through the morning, then being vulnerable to a sell-off in the afternoon. This is the template that considers the rally from Friday’s low to be only a correction.
The same leg that met the 1054 target also contained the session’s high, meaning that upleg had no other purpose. The rally’s 1042 target was essentially a separate operation conducted exclusively overnight. A single leg that fulfilled both targets would have suggested a bigger second upleg would follow. But the second upleg already followed on Tuesday.
Within moments of Tuesday’s mid-morning consolidation beginning to form, I warned in the chartroom that this was probably a momentum peak. The consolidation might launch another upleg, but it wouldn’t be durable. It did, and it wasn’t. Tuesday’s midsection was a 3-1/2 hour, 14-point slide. A bounce followed, and it peaked upon testing the mid-morning consolidation as resistance. The bounce retraced 61.8% of the midsection’s drop, a healthy correction. Unless Tuesday’s late-afternoon bounce were to extend higher at Wednesday’s open, the next leg is down.
This slide could have been bullish, if its intent were to refuel buyers. Perhaps it did, and the rally’s resumption was delayed. If so, the first requirement would be for Wednesday’s open to gap up above the bounce’s 1051.00-1052.25 peak, and extend higher from there. The second requirement would be to close above Tuesday’s 1056.75 high. Any lesser opening strength, or holding a test of 1056.75 would be unlikely to resume the rally.
Indicators and Internals.
RSIs were overbought at Tuesday morning’s 1056.75 high, requiring its retest. Meanwhile, oversold RSIs accompanied low after low after low, all of which were resolved retested. This means that retesting Tuesday’s high as anything other than noise would be likely to break higher – at least 5 points, perhaps to new highs. The retest can be neutralized overnight, or held as resistance before a bias timing window, without buyers gaining traction. Regardless of how, when or the outcome, the retest will remain an objective until there is a close under 1042, the low of the upleg that peaked at 1056.75.
Wednesday’s opportunities.
Tuesday’s slow econ calendar only gets slower. After Tuesday’s intraday round-trip, an inside day wouldn’t be surprising, especially if the morning hasn’t trended. The afternoon might become paralyzed by anxiousness ahead of post-close earning due from Alcoa (AA), the first high-profile among quarterly announcements.
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