Trading Plan for 11/5

If the drop into Tuesday morning was all about trapping weak-handed sellers… then simply retesting Monday”s high might be aiming too low. But if it was strong hands retaking control, then fresh highs shouldn”t even be threatened.

Pattern points… (Setups and technicals)
I had counted out “ineffectual pessimism” at Monday”s high. The timing of its probe suggested that optimistic buyers had become more influential than trapped shorts. The latter had involuntarily aided the rally by being forced to cover. Monday”s last surge was free of that influence.

It didn”t get very far. Essentially the balance of Monday afternoon trended down. So did Tuesday”s open. Pessimism wasn”t quite dead — but there”s still the question of whether it can get up and walk around.

After gapping down, the entire session remained in negative territory (with a small early exception), probed two prior sessions” lows, and closed negative. Since prior lows held through the that”s only “ineffectual pessimism.” 

Gapping up would be credible for recovering back to Monday”s highs, aggressively at a steep pace. Any shallower improvement would be vulnerable to behaving more pessimistically.

What”s Next… (Outlook and opportunities)
Ineffectual pessimism should resolve up by gapping open above one or two prior highs at 2010.00 or 2013.50. Even that would be vulnerable to reversing down through the open. But avoiding that, and triggering bias up, should at least temporarily test fresh highs. Gapping down would be unlikely to hold Tuesday”s 1995.25 low, while extending down to 1989.50.