Trading Plan for 3/26

[pay]About that close (How the prior session ended)
Thursday’s last hour trended down throughout. It started with a bounce to 1171.00 and ended within a tick of 1160.00. The cash session close equated to 1161.50, just 1 tick under Wednesday’s low.

That was enough to make Friday’s open likely to gap down. Had Wednesday’s low been probed any deeper before recovering, or had the recovery been any more substantial, then perhaps not. In fact, after futures bounced to nearly 1163.00 into its close, the Globex open fell to fresh lows at 1159.25.

Pattern points (And technical influences)
Thursday’s session lost about 2 points. That hardly reflects the intraday 12-14 point gain. Its complete retracement hardly reflects the open’s 7-8 point gap up, a gap up to new highs no less. But it is entirely consistent with Tuesday’s false breakout, and the warning that any duplication of the effort would also be the product of weak hands.

The intraday price action formed a couple of interesting setups, described below. Bearish though they may be, one thing it didn’t do was close under a prior relative low – which would actually signal the trend reversing down.

Gotcha! Wednesday’s session never printed fresh highs, and Thursday’s session did. Note how this distinguishes from ongoing trending; rather, it is trending that is trying to resume. That resumption falls flat when the session that probes new highs then fails to close above the prior high close. I call this a “Gotcha!”

Typically this marks a trend high, while also signaling its reversal. It is normal for the afternoon action to offer  a taste of things to come, but still leave pent-up selling pressure to force a drop the following day. Thursday’s last hour slid relentlessly, making it more difficult to trend down Friday.

Pivot Reversal.  Gapping up in an uptrend and extending to new trend highs reflects a great deal of optimism. Gapping to new highs up in an uptrend, dipping back under the prior high, and then later rejecting yet another higher high? That reflects the sudden death of optimism. And that describes Thursday’s price action.

The setup often accompanies trend extremes. Perhaps more important is that it often precedes steep trending in the opposite direction. Thursday’s close back under the 1165.00 prior highs confirms the setup.

Bottom line (My underlying premise)
Given the window opened by these two setups, if neither of can produce a close under a prior low, then it’s because the rally is extending sharply higher. A close above 1170.50 would trap Thursday’s sellers – and Wednesday’s, for that matter – squeezing their shorts into the weekend. That continues to be a vulnerability so long as there continues not to be a close under a prior low. Two nearly consecutive days of trapping weak-handed buyers makes this one of the rally’s biggest threats, yet. [/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.