Trading Plan for 11/3
[pay]Pattern notes.
Friday afternoon’s ranging up to 1040.00 wasn’t capable of producing a durable rally Monday morning. Monday afternoon also ranged up to 1040.00. Should the outcome be any different?
Monday’s 1026.00 low was about 4 points under Friday’s lows, so Monday’s recovery was bigger. That might seem to reflect well on buyers. But Monday’s buyers expended more energy without being any more productive than Friday.
Friday’s close was at the afternoon’s lower-end, leaving plenty of room for firming Sunday night to gain traction. In contrast, Monday’s close is already back at the afternoon’s upper-end. By the same token, failing to exploit the afternoon’s optimism would suggest that its buyers weren’t credible.
Friday afternoon’s high, where Monday closed, was also where Wednesday closed. This 1039.00 area may seem to be acting as a floor of the decline, but it is a floor from which the decline hasn’t been able to lift itself.
Until the 1039.00 floor caves in, there will also be potential for a corrective bounce. The same correction that Thursday’s rally wanted to be, and that Monday’s open could have become, producing a quick two-day move up to 1071.00 or 1083.00 to refuel sellers. No corrective bounce is required before extending the decline.
Indicators and Internals.
RSIs were oversold on Monday afternoon’s first 1026.00 low, albeit a higher oversold that produced a 9-point bounce. RSIs diverged positively when 1026.00 was retested – touched again, actually – producing a 14-point bounce (15 points, counting post-close higher highs). Despite bullishness at the low, and two sizable afternoon rallies, RSIs avoided overbought territory. Gains into Monday’s close were not the product of accumulation. A rally must begin forcefully to avoid resuming the decline.
Tuesday’s opportunities.
Monday’s close at the afternoon’s upper-end, where resistance previously existed, makes early weakness credible. It would suggest that the afternoon’s bounce intended to expend buying energy (i.e. refuel sellers) so the decline could resume. Monday afternoon’s rally did make it much easier for Tuesday’s open to reach and recover Monday morning’s 1049.50 high. This attempt would become very likely just upon recovering 1044.50. And its recovery could trigger a two-day corrective bounce described above.[/pay]