Trading Plan for 3/27
Pattern notes.
Wednesday’s open gapped down. S&Ps trended down, and the entire session was spent in negative territory. That’s a lot of pessimism, but the pessimism might be proved ineffectual because instead of extending any of the intraday breaks under Tuesday’s low, Wednesday’s cash session close was still testing it. S&P futures dropped nearly 8 points after the close on ORCL’s so-called “earnings,” and it won’t be very bullish to repeat the behavior during regular trading hours. So a complete retracement of the post-close drop is a prerequisite to any credible recovery attempt.
That’s not going to be easy, but it’s not impossible. So far, the post-close low has stopped at Monday’s post-open low around ESm 1335’00. As I’ve noted this week in the charting room, that can be surprisingly strong support, preventing lower lows from actually filling the gap back to Thursday’s close. Also, the drop under Wednesday’s cash session lows originated before the Globex open, so its “new trend extreme” wouldn’t require a cash session retest if recovered by the cash session open. And except for prices dropping, the decline hasn’t yet produced new selling pressure or trending.
But don’t confuse this analysis with cheerleading for a bull market. I consider the current drop to be refueling for the last upleg of a correction to the bigger decline. The pattern would make more sense to probe one more higher high around 1365’00-1370’00. I’ll still honor any sell signal, but I’ll also keep their stops tight.
Indicators and internals.
Internals were another potentially bullish factor: Despite 2.2x more NYSE down volume than up volume, declining issues weren’t even 1.5x advancers. This ratio obligates Thursday’s market to reward Wednesday’s buyers for their relative productivity. That can be only temporary, and it can be negated by gapping down under the cash session low (which is already indicated by Globex price action, so that seems like a circular argument). But it does still reflect the narrow focus of Wednesday’s selling pressure.
Thursday’s opening setup.
A gap up above ESm 1341’75 would be a very strong indication that the pullback had ended and that momentum had reversed up. Above 1345’00 would be ideal. Any higher, like up to or above 1349’00, would risk expending too much buying energy instead of attracting new buyers. Further weakness can either drip down to last Thursday’s 1331’00 highs, possibly (but probably not) 1325’00, and then retrace all of Wednesday’s loss. A gap down to 1331’00 would instead form the basis of an Island Top from the past three sessions, and that would be very bearish.