Trading Plan for 3/23
[pay]Pattern notes.
Wednesday’s open had gapped down ahead of FOMC, and FOMC’s surprise triggered a surge to new highs. The new highs held a test of the 800’00 target, which held a retest when Thursday’s open gapped up. The market slid from there into Friday afternoon, whose close barely avoided ending under 762’50.
Closing under 762’50 would have taken the buying from Wednesday’s intraday recovery through Thursday’s opening gap up, tied it up with a neat bow, and dropped all of its weight onto Monday’s open. Sellers could have done this, but did not, despite coming as close as possible. Once a pattern is identified, it must constantly be asked why it hasn’t yet triggered. Often it is just a matter of time, and sometimes just timing. The first test of 762’50 was only a couple of hours old (time) and the close was fast-approaching (timing).
Sellers won’t have those excuses Monday. But now the bar is being raised (or lowered, as it were) to 758’00, whose break would target 750’00. If held as support, a retest of last week’s high would start becoming more likely next than declining back to the lows. There is room to probe several under 750’00 before confirming the decline back to the lows was already underway.
The chart above shows various resistance encountered at last week’s high. The area coincided with normal retracement measurements of the last three downlegs. Their simultaneous satisfaction doesn’t prevent their retest, nor does it mean buyers would gain traction on their retest – more important would be how technicals compared at the time. More important first, though, is that last week’s high doesn’t require a retest before falling back to the lows. Lows that require a retest, but aren’t required to hold.
Indicators and Internals.
MACD & RSI diverged positively Friday afternoon when 762’50 was first retested by a 1-point margin. That produced a 10-point bounce. Technicals improved further on the last-minute retest, but it was too late to prevent extending down Sunday night. In the absence of gapping down Sunday night, Friday’s last-minute technical improvement would give credibility to a retest of Friday morning’s ~776’50 lows as resistance.
Monday’s opportunities.
Careful what you ask for, you just might get it. The administration’s son-of-TARP will be formally unveiled Monday. The Federal Reserve threw a curveball last week, in that some of its more aggressive components had been dismissed previously. The playing field’s new “fluidity” may have renewed uncertainty over this week’s announcement, and accounted for Thursday and Friday’s decline.Initial feedback to details released this weekend say the plan contains no surprises.
A knee-jerk relief rally would be vulnerable to failure, trapping more buyers to fuel the two-week old rally’s retracement. A poor initial reaction that recovers would trap shorts, giving the rally a better chance at resuming. Regardless, a poor initial reaction cannot be relied upon to recover. Existing Home Sales is due at 10:00, and the econ calendar only gets busier through the week.[/pay]