Trading Plan for 11/3
[pay]Pattern notes.
Friday’s session trended up from the opening tick. That characterizes the impression made by price action much better than it characterizes the price action, itself. Missing is any recognition of the open’s 15-point gap down, or the last hour’s 25-point drop. But much is forgiven by a filled gap, and few are in attendance for the last hour.
Okay, we’ve dispatched the session’s two darkest moments down the memory hole. That’s not just one, but two dramatic exceptions. And yet the picture still isn’t overtly bullish, because its close was back under Wednesday’s prior highs (red line on the nearby chart). So, despite converting a gap down into a net gain, and despite probing new relative highs, Friday’s close wasn’t a breakout. What if we just ignore Wednesday’s prior highs?
That leaves an Ascending Triangle (defined by black lines on the nearby chart). Actually it’s a complex triangle, since the pattern develops fully under the prior high (yellow highlighting), which tends to produce a final leg in the direction’s trend before the trend reverses direction. The event qualifies as a false breakout, but in this instance I prefer faux rally – rally, because the price closed higher each day, and faux because probes into of new highs is being rejected.
Indicators and Internals.
Fine. If we can’t build a bullish case above, let’s look below. The nearby chart depicts a Symmetrical Triangle formed from daily closing prices.Last Monday’s new low bottomed at the pattern’s 61.8% false breakout target. The rally from there would seem to confirm the breakout was false, but volume does just the opposite. False breakout or not, volume leading into Monday’s low should have exceeded the pattern’s average pace, but didn’t. And volume on last week’s rally only worsened.
Another thing bulls would like to ignore about Friday’s session is that MACD & RSI diverged negatively into session highs. Refer to the first chart to see where RSI fell short. The divergence has already been productive, but the indicator didn’t seem impressed.
Monday’s opportunities.
The discussion above pokes holes in the bullishness of last week’s rally. That’s not entirely fair since last week’s highs consolidated just under prior relative highs, where the decline’s last downleg originated. If that was the market being constructively pessimistic, then Monday’s open should gap up above those prior highs – from ESz 987’50 to 989’00 – and extend higher. That’s a 22-23 point gain from Friday’s close. A break under 950’00-951’00 would trend down. A gap or immediate break might not be enough, since two econ reports due at 10:00 might try to accelerate or reverse any initial trending.[/pay]