Trading Plan for 3/18

[pay]Pattern notes.
Monday’s last-minute dive ended the day ranging narrowly around last Monday’s close. A definitive recovery would have completed the “Gotcha!” setup that requires a gap up the following day. Illustrating this, a 10-point bounce was retraced entirely to back under ESm 1280’00 where Monday’s session closed. Now Monday’s high is being probed by 3 points up to 1292’50, threatening to fulfill the Gotcha’s gap up at Tuesday’s open.

I’m not going to try shorting new relative highs before something indicates their failure. But it is difficult to buy hand-over-fist when the market itself is fighting the setup. If the premise of a Gotcha setup is correct, then the immediate reaction should be up regardless of the eventual reaction. So I’m not going to doubt that stage so long as S&Ps remain above last Monday’s ~ESm 1278’00 close. Eventual reactions to Gotcha setups can extend for 2-3 days, but the hesitation here isn’t tracking the classic Gotcha template.

Indicators and internals.
NYSE down volume measured 4 times up volume, but produced 4-1/2 times more declining issues than advancers. Normally that would obligate the following session to reward sellers for their relative productivity. And normally that would also apply to an abnormal day like Monday. MACD & RSI meanwhile aren’t confirming the overnight probe above Monday’s highs, so some sort of pullback here is likely.

Tuesday’s opening setup.
The market’s hesitation at tracking the Gotcha template might prove to be constructive from a contrarian perspective. Two relatively high-profile econ reports are due pre-open (Housing starts, PPI), and the afternoon’s FOMC interest rate decision comes amid growing pressure for a 75-basis point cut. The Gotcha setup’s bullish resolution remains in-play until proven otherwise. But at this point I wouldn’t be surprised if it were proven otherwise. And at this point that would be proved by a pullback that didn’t hold ESm 1281’50.[/pay]