Trading Plan for 3/13

[pay]Pattern notes.
The interesting thing about Thursday’s rally wasn’t its size, and it wasn’t the particular levels that were recovered. Thursday’s rally was interesting for what it lacked: any meaningful pullback.

Except for the opening 15 minutes of volatility that dipped to test the 713’50 bias-down signal, no other pullback even threatened a prior low. Rarely did a dip even touch a prior high before its consolidation resolved in new session highs. Buyers were too impatient to allow a healthy pullback that might trap shorts whose subsequent covering could fuel the rally.

We know the sentiment behind this impatience as being optimism. And we know impatient optimism is not the stuff of bottoms. It is not necessarily the stuff of tops, but that’s a lot closer to reality. So, with the context identified, it is at this point interesting too note what levels were recovered this week already, and what was not.

February’s last two sessions began the steep slide into last Friday’s low. Those sessions ended a week of ranging sideways, repeatedly probing 774’00 as resistance. But it was a close at 757’00-758’00 and a gap under it that left the range behind. Whether a corrective bounce is ending or just getting underway, one or both of these levels should be given the opportunity to reject another recovery attempt.

Indicators and Internals.
RSIs diverged negatively at different points throughout Thursday’s rally. They correctly identified the pace slowing or a deeper dip about to begin, but none of those became anything noteworthy (except for their lack of noteworthiness, which is in itself noteworthy). Sellers couldn’t gain traction. Even the very last-minute very minor probe of the prior high, whose RSI diverged negatively, has been followed by at least nine hours of ranging narrowly. A lot of buying energy is expeded to retain control, so the first or second deep pullback should be pretty final for the rally.

Friday’s opportunities.
The overnight reaction to Thursday’s rally is again shallow, suggesting optimism is alive and well, and capable of producing at least one more higher high. The 757’00-758’00 area isn’t a big leap from Thursday’s peak around 750’00. If not rejected early, then 774’00 might be attacked soon after the noon hour. Initially dipping would be likely to recover, even if only temporarily. Not recovering intraday from an initial dip would be the most bullish scenario, showing buyers to have overcome their impatience. Right. Not very likely with the sentiment having served them so well all week.[/pay]