Trading Plan for 3/11
[pay]Pattern notes.
There was a double-whammy behind Tuesday’s surge: word leaking out that will be reconsidered, and upbeat comments from Citi. The rule’s consideration is a month away, and Citi’s news was from an internal memo. Anyway, the reaction among financial stocks was 180° from what had been pervasive bearishness, a welcome change in sentiment that produced a 14-point gap up above Monday afternoon’s highs.
Having come after Monday’s close was biased down, the gap up formed a setup triggering a session-long rally. The rest was history, a post-open 31-point session-long rally. Those 31 points were also only a formality, their only peculiarity being the actual tally. What’s important is that the session-long rally literally rallied session-long. Optimistic from beginning to end, the intraday action contained several other such instances. Sellers simply weren’t a factor.
A last-minute surge avoided closing back under the afternoon’s two prior highs. It was touch-and-go until the last 5 minutes, so the afternoon effectively ranged sideways. Treading water doesn’t refuel sellers, and it expends a lot of buying energy. If the rally were to extend Wednesday, then it would be the product of new sponsorship coming out of the woodwork; Tuesday’s buyers are spent.
Indicators and Internals.
Tuesday’s extremely wide margin between up and down volume is nearly impossible to maintain. Maintaining it Wednesday would immunize the market from another downleg for multiple days, perhaps weeks. Tuesday’s volume was similar to Monday, whose pace was already a little slow. That’s not a deal-killer for buyers, because volume shouldn’t be stellar on a a bear market rally.
Volume is almost sure to expand if the rally extends through Wednesday. It should contract on any pullback – whether intraday or through the close – or else the decline could resume going into the weekend.
Wednesday’s opportunities.
The econ calendar is conveniently shallow, and not a distraction. The open’s most important characteristic will be whether buyers get ahead of themselves. An opening surge that is reversed entirely would suggest as much. But an opening dip could be as bullish as maintaining an opening surge’s gains. A gap open under Tuesday afternoon’s 707’00-709’50 prior lows would signal a session-long decline, poetic justice that would seriously undermine the quality of Tuesday’s rally.[/pay]