Trading Plan for 3/17
[pay]Pattern notes.
What a week it was. And what a week it will be. Bear Stearns might have avoided its untimely end, or at least delayed it for a more timely one. The event helped crystallize the impression that the risk hasn’t yet abated, knocking down prices back to levels that more appropriately discounted this perception. You won’t find it listed on any of this week’s meetings, conferences and announcements, but it might as well be the only thing. There’s also an FOMC meeting with interest rate announcement Tuesday afternoon.
Last week was also notable for having finally retested January’s low. Well, not finally. Friday’s low retested it. And January’s pre-open “Globex trend extreme” requires a cash session retest, too. Friday’s closing bounce avoided signaling whether to hold short over the weekend, almost a “never” for my rules, with this situation almost fulfilling the exception. A last-hour recovery is always suspicious, let alone a last-hour bounce that doesn’t recover anything substantial. A last-hour bounce on Fridays is less credible, still. Regardless of how this week starts, or how it ends, I don’t know how it avoids including new lows whether by detour or downleg.
Anyway, this week’s scheduled events alone offer plenty of catalysts for volatility. And more so than usual, with there being 20% less time to play out before the market closes for Good Friday. The compacted time frame often exaggerates volatility. The impending three-day weekend of illiquidity doesn’t help matters. Did I mention this week is option expiration? Quadruple-witch, no less. Don’t think just because everyone sees these on the calendar that the schedule change won’t wreak havoc on volatility.
Indicators and internals.
MACD & RSI were mixed to higher at Friday’s low, which the 25-point bounce from there has already satisfied by recovering one-third off the session’s low (two-thirds before softening into the close). Declining NYSE issues numbered 5-1/2 times advancers, on 11 times more down volume than up volume. The internal ratio of 2:1 can obligate the following session to reward buyers for their relative productivity. But the absolute spreads are too deep to avoid a retest.
Monday’s opening setup.
A break under Friday morning’s low in the ESm 1280’00 area isn’t difficult to imagine since the afternoon’s low was lower only 90 trading minutes earlier. But it is difficult to imagine a recovery if the break were maintained through the 10:15am ET window. Futures closed 3-1/2 points above the cash session, leaving a vacuum that will try to send price down to erase the premium. That often kick-starts more.
So bullish hopes appear more than ever to be pinned on whether buyers can be enticed and sellers can be inhibited early enough, by something external like a news item. As of Sunday afternoon the Wall Street Journal is reporting an impending deal between BSC and JPM, at much lower than Friday’s closing price for BSC. Recovering above ESm 1300’00 would be more bullish, at least for the near-term.
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