Trading Plan for 3/18

[pay]About that close (How the prior session ended)
Had buyers waited for the afternoon’s no-bias environment to lapse after 2:30, their probe of higher highs would have gained traction. Impatient weak hands lack durability, limiting their gains to just 3-4 points at 1165.00. RSIs diverged negatively there, and the afternoon’s false break was retraced back down to the 1158.00 opening print.

The opening print was a gap, and a gap offers natural support. Its test produced a bounce probed the open’s 1161.50 high, which was still being tested into the close. Again, weak hands. Had this late bounce not touched the open’s high, then it wouldn’t be judged by whether the open’s high held as resistance. It was tested, reflecting that sellers were the patient ones. Its test held, reflecting that the buyers involved were weak hands.

Pattern points (And technical influences)
Bigger sell signal averted. Closing under 1158.00 might have merited holding short through the close. RSIs were oversold at the low, making its retest likely. Had it been retested before the close, RSIs could have easily diverged positively. Again, patient sellers left that test for later – keeping the bearish attraction alive overnight, all but invalidating the potential for a positive divergence.

Ill-timed effort. Notice that the afternoon’s no-bias rally was retraced when the no-bias environment lapsed, instead of waiting for another day. While this prevented buyers from gaining any traction, it also cast those buyers as weak hands. So the consequence isn’t just the no-bias rally’s retracement back to its 1162.25 origin, but the retracement of all of Wednesday’s rally from Tuesday’s 1154.75 close.

Tuesday’s rally didn’t extend immediately higher on existing sponsorship, nor did it first dip to refuel buyers. It extended higher eventually, without the benefit of either. Its complete retracement back to pre-FOMC highs is 1152.50, which was reached originally Tuesday in the process of neutralizing what was unfinished business above. The domino effect would only begin there, and not end.

Where’s the beef? Meanwhile, sellers lack one very important asset: Actually triggering a sell signal on a closing basis. Wednesday’s high can be retested, probed and extended – and may yet be – until the thinness of the stretched rubber band either snaps back, or breaks.

Expiration influences. If counter-trend sponsorship isn’t obviously retaking control Wednesday afternoon of expiration week, then it’s probably not a meaningful force. It didn’t, but Wednesday afternoon’s reversal buys a little time through Thursday’s open. This wouldn’t necessarily default to being a runaway rally, but it wold makes dips likely to recover.

Bottom line (My underlying premise)
For all this talk about “weak hands,” I should take a moment to be clear about the implications. It’s not just that weak hands don’t lead durable trends. It’s that weak hands don’t take the lead if stronger sponsorship is available. Price is rallying instead of declining, not because stronger sponsorship is accumulating, but because sellers aren’t presenting much opposition.

Does that matter if the intraday ends higher anyway? Well, yes, because it helps to define the character of that intraday, i.e. it made Wednesday afternoon’s rally suspicious before it happened. It also tells us that all of Wednesday’s rally must be retraced, not just the no-bias portion.

And it tells us – well in advance – that when the trend does reverse down, it will reverse down in a very, very big way. [/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.