Trading Plan for 3/17

[pay]Pattern notes.
The week-long rally has been either a corrective bounce preceding a retest of the lows, or else the beginning of an extended bear market rally. A weak morning Monday would have helped the latter scenario, refueling buyers for a longer journey. Instead the session rallied first, and then cratered. Regardless of the order, the session ended essentially flat from Friday’s close, so neither scenario has yet been determined. And momentum hasn’t necessarily reversed down.

Monday afternoon’s low reached its objective at 750’00, natural support where the overnight surge had lifted off. A bounce would likely attack 759’00 or 763’50. Any higher would no longer be a bounce, and would more likely retest Monday’s 771’50 high by several points. The minimum bounce target is being tested overnight, and back under 755’50 would signal it had probably ended.

Indicators and Internals.
MACD & RSI diverged positively as Monday afternoon’s low was fulfilling its objective. The setup is fulfilling its 759’00 likely bounce target, and both 1-minute and 3-minute indicators are diverging negatively. A higher high would be difficult to maintain without first pulling back. And a deep enough pullback would be more vulnerable to sellers gaining traction for resuming Monday afternoon’s decline.

Tuesday’s opportunities.
The econ calendar is active. The big test won’t be how the market stands up (or down) to the news, but how it reacts to Monday afternoon’s retracement. The morning’s rally is similar to the bounce underway overnight – both allow room for selling to drive price down without breaking under prior lows. Early weakness Tuesday will need to be profound weakness if sellers are going to gain any traction from it. A gap up would be more difficult to maintain, let alone extend, but still possible until sellers have retaken control.[/pay]