Trading Plan for 1/29
[pay]Pattern notes.
Wednesday afternoon’s drop from its 876’00 high was unable to break under 862’50. More than a retracement, its break would have triggered a downleg. But it was only pierced momentarily, similar to earlier tests of 857’00 and 862’50 (prior to the FOMC news) that also held as support.
The session’s last half-hour reacted back to 872’00. Being only a reaction, its purpose was to refuel sellers. Any credible attempt to extend higher Thursday morning is all but required to begin by gapping up. Consequently, if the open is not gapping up, it’s probably because the open is sliding or gapping down.
And since Wednesday’s last move was a bounce, a bounce back to a relevant level (872’00), a session-long decline can be signaled by gapping under the last relative low of 862’50 (really 861’25, but that was a test of 862’50). This signal isn’t required to trigger, and simply sliding at the open would be more likely to recover from testing the last relative low.
In case of the open gapping up to give buyers traction, or in case of any other valid buy signal, a detour back up to January’s highs would become likely before returning to last year’s lows. That’s not yet signaled, but Thursday’s price action could determine the next sizable move.
Indicators and Internals.
RSI refused to become oversold throughout Wednesday’s 15-point drop from its 876’00 high. The indicator found a floor that was decidedly above being oversold. While oversold conditions do make bounces likelier, oversold conditions aren’t reached unless selling pressure is increasing. The afternoon’s steadily dropping price was not the product of increased selling pressure, and that’s why Wednesday’s last half-hour bounced. The steady bounce also failed to turn overbought, making it less sustainable, unless followed by a gap up.
Thursday’s opportunities.
Jobless Claims before the open and New Home Sales afterwards tend to incite a reaction. The FOMC decision proved once again to be losing its relevance, and the reaction to the so-called stimulus package proved the House’s vote was never much in doubt. With so much that was laying in the market’s path now moving into its rearview mirror, a trending session becomes more likely.[/pay]