Trading Plan for 11/2

Monday’s session-long decline… was likely to probe lower lows Tuesday. This was a little extreme. The downside vulnerability may have exacerbated the reaction to overnight news. Regardless, the question now is whether the decline can extend further.

Pattern points… (Setups and technicals)[pay]
Tuesday’s open and closing print were within 1 tick of each other at 1214.25-1214.50. That’s a remarkable consistency compared to the turmoil of gapping down 34 points.

But Tuesday was not “ineffectual pessimism” that would otherwise suggest the decline’s sponsorship is weak hands. There was no fresh afternoon low, and therefore no recovery from fresh afternoon lows to trap shorts. Tuesday’s range probably can’t launch a durable recovery.

It can try.

Recovering 1227.25 Tuesday would have targeted the 1238.00 area. Its delay would now allow a recovery attempt to target 1248.00, too. And given the right conditions, that could even gain traction to retest last Thursday’s 1289.25 high.

But I doubt it.

Not extending the overnight drop intraday can make the decline likelier to extend down. And extending the decline is likelier to try duplicating Tuesday’s gap down. Back under 1212.75 would at least target fresh lows at 1205.00, which perhaps only a gap up Wednesday can prevent.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Tuesday’s post-close 10-point surge from 1214.50 to 1224.50 seems like it already started the recovery bounce. It had better. That’s the first step to rejecting Tuesday’s 1225.25 close under the prior Tuesday’s close — closing under the last relative low close signals the trend reversing down. A second consecutive close under 1225.25 would confirm.[/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.