Trading Plan for 10/8
[pay]Pattern notes.
Thursday’s drop bottomed after having trended down sharply through the noon hour, testing the decline’s 1030 target. Then came a last-minute drop. A last-minute drop that remained under pressure overnight, plunging on the pre-open Employment Situation report. In all, S&Ps dropped an additional 18 points under 1030.
Not a bad day’s work for pessimistic last-minute sponsorship. But it was still pessimistic last-minute sponsorship. There was no counter-trend bounce along the way down to refuel sellers, either. And despite rallying out of the open’s gap down, the entire session traded in negative territory below Thursday’s futures close, only briefly probing Thursday’s cash session close.
Pessimism, uninterrupted selling pressure. This doesn’t even include Thursday’s slide into the afternoon, itself uncorrected. None of which says the pessimism is excessive, let alone that the drop has gotten ahead of itself. What it does say is that the likeliest alternative is to continue dropping sharply through Monday’s open. And vice-versa. If the decline hasn’t resumed through Monday’s open, then it’s probably because a rally is already underway.
Dropping first Sunday night would be tricky. Friday’s pre-open low at 1012 is a “new Globex trend extreme” that requires intraday retest. Probing it overnight makes it less likely to hold as support. A rally’s best hope is to get underway without delay at Sunday’s Globex open, and without looking back through Monday’s open. Alternatively, a short and shallow dip would make a corrective bounce easier. However it begins, a rally’s objectives would include the decline’s 1030 target, higher prior lows around 1042, and potentially the gap back to Wednesday’s 1054 close.
Friday’s 1012 pre-open low shouldn’t be probed by more than 2-4 points, down to 1008-1010. If 1012 must be tested Monday, then it must be tested after the open, i.e. intraday. Even if its retest produces a bounce back into positive territory, that recovery must extend higher intraday and on a closing basis. Otherwise, the decline’s resumption would become likely Tuesday. And if a weekend of illiquidity didn’t inspire trending, then a week’s worth of liquidity would invite it.
Indicators and Internals.
RSIs were oversold at Friday’s pre-open low. They were slightly higher lows, but oversold nonetheless. However, the setup didn’t happen intraday. So, while its retest is likely, it isn’t required. RSIs were overbought on the morning’s bounce up to 1026.25. Its retest is required. The afternoon’s strength came within 1 tick. Is that close enough for a Friday? Its retest would be preferable, but it’s not capable of overriding a sell signal.
Monday’s opportunities.
The timing of a 10:00 econ report should either reverse any initial trending, or accelerate it. An opening spike or gap, up or down, can’t be taken for granted, not until either clears its prominent hurdle. Hesitant initial trending is going to be less vulnerable to reversing on the news. Back above Friday’s 1026 high after the session’s first half-hour should marginalize sellers for 1-2 days. Back under 1015 would keep buyers on defense while the market does more work probing Friday’s lows, possibly trending down.[/pay]