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Trading Plan for 3/16 – If, Then… Market Timing

Trading Plan for 3/16

By Rod David | March 15, 2011 - 6:19 pm

A lot of buying energy was expended Tuesday… and it produced only a touch of Monday’s “higher prior lows” as resistance (circled green on the chart below). In other words, buyers gained nothing for their efforts. There’s more.[pay]

Pattern points… (Setups and technicals)
es_031511_day.gifThe chart also shows Tuesday’s opening gap was left open (circled red). The overnight lows aren’t shown in the chart, but they werent’ touched intraday. Being “new Globex trend extremes,” their eventual test intraday is almost historically required.

A more recent pattern is in conflict. Sort of.

Tuesday’s highs formed a Head & Shoulders (highlighted red on the second chart). The pattern tends to reverse price temporarily, before it resumes trending in the original direction. And the pattern so far has only broken lower.

The last drop into Tuesday’s close bottomed at the Head & Shoulders 1273.00 161.8% extension. The cash session closed at its 1276.50 61.8% extension. A recovery to at least fresh highs at 1285.50 is likely next. That’s where the “sort of” comes in, since the Head & Shoulders recovery tends to be the rally’s final leg.

Wednesday’s open could neutralize the Head & Shoulders influence. Immediately breaking under the Head & Shoulders 1269.50 es_031511_close.gif261.8% extension would invalidate any attraction back up to fresh highs.

That would also take out the lower-end of Tuesday’s mid-afternoon consolidation (highlighted red on the second chart). That would signal a new downleg underway since the consolidation’s upper-end held as support (highlighted green).

What’s Next… (Outlook and opportunities)
This market has been driven by overnight news. Assuming the world is still okee-dokee with the nuclear meltdown underway in Japan, then a firm open would target fresh highs deeper into Monday’s range. But there isn’t much room below to absorb overnight weakness without gaining traction to resume the decline.[/pay]Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.

Posted in Market Wrap, S&P